Some good news for the PF government! Well kind of good news. The economy is 25% larger than previously thought. According to new figures released by the Central Statistics Office. The CSO have now moved to the new base year of 2010. Zambia last rebased its GDP measure in 1994 and a lot has changed since then. The annonced GDP rebase follows the completion of its analysis of the 2010 economic census.
It is customary for countries to rebase their GDP every five years or so to keep up with prices and structure of the economy. More importantly such a rebasing exercise usually includes taking on board new accounting conventions, improved estimation methods and revised statistical classifications. For Zambia this has not happened for nearly 20 years making the GDP and inflation (GDP deflator) figures deeply unreliable.
The 25% estimate is larger than the 20% it had previously suggested. However it is lower than what we have seen for Ghana were the rebasing exercise increased its GDP by 60%. The Nigerians are expecting their GDP to double when it rebases later this year. Zambia's GDP has not changed as much as that because we are still structurally dependent on similar activities as in 1994.
So what does this mean for Zambia?
In practical terms it simply means average GDP per capita (GDP divided by population) is much higher than we thought. Zambia is indeed a proper middle income country - as shocking as that sounds. However, it will also means that WE ARE MORE UNEQUAL than before. More importantly it calls for head scratching on why poverty levels are so high in many parts of the country for a 'middle income' country.
The revised GDP per capita will encourage Government to borrow more and spend more. A higher GDP will means our GDP debt ratio is very low. It also means the fiscal deficit as a proportion of GDP will now be lower. This gives Chikwanda slightly more capacity to borrow and may explain why he has substantially increased his intention to borrow. Is this his "get out of jail card"? Well we have to wait and see because there are other things also at work as we have discussed (including the narrow revenue base and wider fiscal irresponsibility). My view is that Zambia is still in trouble even with the re-basing.
A higher GDP per person of course means that on average Zambians have more money than we thought (most of it in the top 5%). This may now attract interest from investors in long term who may see this as an increase in the purchasing power of Zambians. But it will also mean Government should be doing more to improve collection of tax revenues from the rich. Critical here is tackling informality by lowering taxes to small firms and reducing regulatory costs of doing business.
In short this is latest announcement is more than a cosmetic change. It will have implications in many areas. And it is a change that is long overdue. The way the CSO is run currently is a complete shambles as I have previous noted. The time has surely come to review our statistics and put in place a more independent statistical authority with competent officials. I welcome the latest initiative to produce quarterly GDP figures. But there should also be greater emphasis in producing regional GDP figures and more regular publication of independently verified employment statistics.
Chola Mukanga | Economist
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