By Chris Mfula LUSAKA (Reuters) - Zambia plans to nearly halve its budget deficit in 2016 as economic growth edges up although it will face continued external challenges including weak commodity prices, Finance Minister Alexander Chikwanda said on Friday. Presenting a 53 billion kwacha ($4.5 billion) 2016 budget to parliament, Chikwanda said the government would slash the budget deficit to 3.8 percent of GDP next year from 6.9 percent and limit domestic borrowing to 1.2 percent. Economic growth for Africa's no.2 copper producer would be restricted to 4.6 percent in 2015 due to weaker global activity and commodity prices as well as a domestic electricity crunch, but would tick up to 5 percent next year. "Zambia should be prepared to meet the challenges that may arise from externally induced shocks, especially further falls in commodity prices," Chikwanda said. The government had reduced allocations for non-core recurrent expenditure by more than 50 percent and taken measures to enhance domestic revenue collection, which was seen rising to at least 20.4 percent of GDP in 2016 from 18.1 percent in 2015. President Edgar Lungu's government, which faces a stiff challenge in elections next year, would significantly limit domestic borrowing and focus on accessing external financing with lower interest rates and longer repayment periods, Chikwanda said. While the attempt to consolidate the fiscal balance in an election year should be favourably received, the detail behind these assumptions was important, Standard Chartered Africa economist Razia Khan said. "The key question is the level of access to external financing that Zambia will have," Khan said. Zambia issued a $1.25 billion 10-year Eurobond in July at a hefty 9.375 percent interest rate to finance a budget deficit expected to swell to 20 billion kwacha by the end of 2015 from an initial forecast of 8.5 billion. [ID:nL5N1034IN] The International Monetary Fund said in May that Zambia's economy was at risk from budget imbalances, lower copper prices and policy uncertainty. [ID:nL5N11L4VT] On Friday, Chikwanda said inflation was likely to exceed the target of 7 percent in 2015, pushed up by a sharp depreciation in the kwacha. The currency has lost nearly 85 percent of its value against the dollar this year. Zambia would probably not attain its 2015 copper production target of 808,000 tonnes, although the government was talking to struggling mining companies to find ways to minimise job losses. "The major factors for this negative performance are the low copper demand and prices, coupled with electricity constraints," Chikwanda said. The government would raise electricity tariffs to attract private capital by ensuring investors got a good return, he said. ($1 = 11.7800 Zambian kwacha)