Creating and wasting fiscal space: Zambian fiscal performance 2002–2011

Following three decades of economic mismanagement and decline, Zambia has experienced sustained economic growth since the turn of the century. The combination of rapid growth, reduced public expenditure, increased mining taxation and debt relief helped the Government establish fiscal discipline and reduce fiscal deficits and debt to sustainable levels. As a result, fiscal space has grown significantly and Zambia is no longer aid dependent. In addition, lower domestic public borrowing has helped cut inflation and interest rates and has reduced crowding out of private sector borrowing. These developments would normally be expected to lead to significant poverty reduction. However, by 2010 there had been little improvement in poverty. This is partly due to fiscal space being wasted on ill-­‐designed agriculture policies and uneconomic road paving projects of little benefit to the poor.