An Economy Gaining Speed, a Financing System Struggling to Keep Pace: Zambia’s Development Dilemma

Zambia’s economy expanded by 5.2% in 2025, but a staggering $5.4 billion annual development financing gap threatens to constrain its transformation ambitions. The African Development Bank is calling for tax reforms, private investment, innovative capital-market instruments and stronger development financing to bridge the divide between economic growth and long-term prosperity.

Zambia's economic expansion is gathering momentum, but the country's ability to convert stronger growth into lasting development faces a formidable financial constraint. With GDP growth accelerating to 5.2% in 2025, the government confronts a larger challenge: mobilising billions of dollars annually to finance infrastructure, diversify production and generate employment without relying exclusively on traditional public financing.

The African Development Bank's (AfDB) 2026 Country Focus Report, titled Mobilising Zambia's Development Financing at Scale in a Fragmented World, estimates annual structural transformation financing requirements at $6.9 billion through 2030. Of this amount, approximately $5.4 billion remains unfunded annually, exposing a substantial disconnect between Zambia's economic ambitions and its available development capital.

The assessment comes as geopolitical tensions, international conflicts and political instability complicate the broader financing environment. Presented in Lusaka by AfDB Country Economist Toussaint Houeninvo, the report places Zambia's fiscal and investment choices within a global landscape where securing reliable development finance remains increasingly important.

Growth Gains Expose the Limits of Zambia's Development Financing

Zambia's GDP growth accelerated from 3.8% in 2024 to 5.2% in 2025, supported by agriculture, information and communication technology, transport, mining and manufacturing. Foreign investment and net exports also contributed, indicating that several areas of economic activity participated in the expansion.

However, stronger output does not automatically translate into sufficient capital for long-term development. Expanding productive capacity, improving infrastructure and strengthening economic diversification require financing commitments that extend beyond immediate economic performance. Zambia's challenge lies in connecting its present growth momentum with investments capable of supporting future expansion.

The financial figures underscore the scale of this task. Against estimated annual requirements of $6.9 billion, the AfDB identifies a $5.4 billion financing gap through 2030. Average financial inflows between 2020 and 2024 amounted to $379 million, illustrating the limited scale of historical inflows relative to the country's development ambitions, although the measures are not directly equivalent.

The difference also raises questions about financing priorities. Resources directed toward natural-resource value addition, agro-processing and climate-resilient infrastructure could support broader productive activity, while insufficient financing may restrict the pace at which these priorities advance. Economic diversification therefore depends not simply on identifying opportunities but on mobilising investment around them.

Zambia's position reflects a wider financing dilemma confronting development strategies amid global uncertainty. Domestic economic expansion can improve the foundations for investment, but persistent funding requirements demand institutions and financial mechanisms capable of attracting resources from multiple channels.

Tax Reform Alone Cannot Bridge the Investment Divide

Domestic resource mobilisation has become a key element of Zambia's financing approach. According to the AfDB, domestic financing accounted for approximately 81% of the country's 2025 budget, demonstrating the significant role of internally mobilised resources in supporting public expenditure.

However, financing a national budget and meeting the investment requirements of structural transformation are different undertakings. The country's estimated development financing gap indicates that domestic public resources, despite their substantial budgetary contribution, cannot be treated as a complete answer to its long-term investment requirements.

The AfDB recommends broadening Zambia's tax base, simplifying procedures, integrating revenue administration, digitalising platforms and improving compliance. These reforms are intended to strengthen collection systems and expand the government's capacity to mobilise resources without depending solely on additional external financing.

Administrative improvements could make revenue collection more efficient, although their financial outcomes will depend on implementation. Expanding the tax base also requires attention to how obligations are distributed among taxpayers and businesses, particularly where compliance procedures and administrative capacity influence collection performance.

The deeper policy tension concerns how to strengthen public financing while encouraging productive private investment. Revenue reforms can improve domestic financing capacity, but infrastructure, industrial development and economic diversification require additional sources of long-term capital.

Multilateral development banks consequently retain an important role. Concessional financing, generally provided on more favourable terms than commercial borrowing, can support development priorities, while instruments that reduce investment risks can encourage private participation. Their contribution will depend on whether such mechanisms mobilise financing beyond existing public resources.

Zambia's Next Test Is Turning Financial Reform Into Productive Investment

Zambia's revised public-private partnership framework offers one potential route toward expanding investment. The 2023 PPP Act explicitly supports small and medium-scale partnerships, widening the scope for private involvement in local infrastructure development and other strategic priorities.

The inclusion of smaller partnerships is significant because development financing requirements extend beyond large national projects. Municipal authorities and local infrastructure initiatives may also require investment structures capable of combining public objectives with private financing and implementation capacity.

Nevertheless, legislation alone cannot establish whether projects are financially viable or attract investors. Contractual arrangements, risk allocation and institutional implementation will influence whether Zambia's revised framework produces functioning partnerships rather than remaining primarily a regulatory achievement.

Capital markets represent another prospective financing channel. Under the Capital Markets Master Plan, the AfDB identifies municipal, green, social, sustainability-linked and gender bonds as instruments that could direct investment toward infrastructure, environmental and social priorities.

Pension funds and institutional investors could further strengthen the availability of long-term financing. Their participation would depend on investment opportunities, acceptable risks and the ability of financing structures to accommodate institutional requirements while advancing development objectives.

The proposed instruments also introduce questions about coordination. Raising funds through multiple channels is only part of the challenge; directing capital toward natural-resource value addition, agro-processing, climate-resilient infrastructure and employment generation will determine how financing contributes to economic transformation.

• For businesses, stronger access to investment could support productive expansion.
• For public institutions, the challenge involves combining fiscal reforms with credible financing structures.
• For citizens, the more consequential measure will be whether economic expansion and investment translate into employment opportunities and improved development outcomes.

Zambia's 5.2% growth provides a stronger economic starting point, but closing the financing gap requires more than sustaining GDP expansion. Progress will depend on revenue reforms, workable partnerships, capital-market development and multilateral support.