The Zambian economy has grown relatively fast over the last decade. This article discusses the challenge of using these growing resources effectively to improve the welfare of the population and reduce poverty. The poverty head count index is found to have declined between 1998 and 2004 by about 5.4 percentage points. This change can be decomposed into a 6.6 percentage point reduction due to growth and a 1.2 percentage point increase due to inequality change.

Since poverty is most severe in the rural areas, it is important to make agriculture more efficient by expanding access to electricity and improving roads, extension services and education. The paper further highlights the need to improve tax revenue collection and efficiency in realising budget expenditure plans. An important reform to undertake would be to change the budget cycle. The private sector development strategy should make the country a more attractive destination for private investors by creating a better business environment and infrastructure. The country needs a new trading arrangement with the European Union. Poverty relevant social services such as health and education remain vital. The health sector needs to be strengthened, both because it has an immediate effect on welfare and because it helps build and protect human capital that is essential for long-term growth. Social protection might have a role to play. It might be possible to use schools for channelling resources to the poor. Finally, improved governance helps all other measures to become more efficient.