BANK of Zambia Governor Dr Denny Kalyalya says uptake of the K10 billion medium term refinancing facility has been slow with only about K1 billion disbursed so far.

And Dr Kalyalya says the country’s international reserves have increased to K1.43 billion, representing 2.3 months of import cover.

Meanwhile, Dr Kalyalya has announced a reduction in the Monetary Policy Rate (MPR) by 125 basis points to 8 per cent to mitigate the adverse impact of the COVID-19 pandemic to help stabilize the financial sector, among others.

Speaking during the monetary policy announcement briefing, Wednesday, Dr Kalyalya said about K5 billion had been approved but added that changes would be announced as and when they were made.

“You know, this facility, I think we have explained very well that this is an initiative that the Central Bank took which is on the balance sheet of the Central Bank, so indeed we received suggestions on how to look at that but we are looking at how we can make it go far. So far, I think we have approved close to about K5 billion in terms of applications but disbursements haven’t matched that approval rate. We have disbursed over K1 billion in terms of disbursements. Now, the others have suggested, ‘why don’t you give the money and then monitor afterwards’? But our experience has been that if you do that, by the time you come to take account, the money would have been used in a different way. So we are continuing to engage and this problem hasn’t gone away so we have to find ways…the other way is measures that the government has taken which can address certain things. The K10 billion is just but one of the tools that we have so we can’t overload it with all the demands that we need to make, so we’ll sensitively and prudently look at how this can be rolled out,” Dr Kalyalya said.

“Remember, it’s not free money, otherwise if it was free, by now we would have disbursed it already but we are also alive to the challenges that had emerged in previous facilities where the intended objectives were not met. So it’s an ongoing thing, we will let you know when we have made those changes which we deem will be appropriate…Of course, the K10 billion facility is not moving at the pace we had anticipated and we will be looking into this as we go forward.”

He added that high fiscal deficits were among the factors keeping inflation on the high side.

“Factors that are keeping inflation above the upper bound of the target range in the earlier part of our forecast horizon include higher fiscal deficits and the weakening of the global economy. There are indeed some still risks to this inflation outlook that we are projecting; one is that there could be further deterioration in the fiscal deficit, there could be some adverse impact coming out the monetary expansion arising from the reduction in the policy rate that we are announcing today and that we announced previously as well as some other measures we are taking in the financial sector,” Dr Kalyalya said.

And the governor said the rise in import cover was technical as it had been caused by low import demand as opposed to increased reserves.

“In the external sector, we see that there is a surplus though it narrowed in the quarter under review. We see that we have US$210 million but when we look at this, it is worrying in the sense that it is arising from deficits on the primary income which means that the loss making is hidden as surplus so you cannot rely on that as being sustainable but for accounting purposes, there is a surplus but its technical surplus…Now, what you want to see here is that if you look at the goods export, they have come down and if you look at the imports, they have gone down significantly. So because of this rise…import cover from the reserve that we have has gone up so we can’t really say we are comfortable with that situation because it’s arising out of constrained demand which shouldn’t be the case. As at end June, gross international reserves increased to K1.43 billion which is equivalent to 2.3 months of import cover,” he added.

He further announced a reduction in the monetary policy rate, bringing it to eight per cent.

“If you recall, the last time we met over this matter, we reduced the policy rate by 225 basis points, so we have decided to reduce it by a further 125 basis points, bringing it to eight percent. There are a number of factors that the committee took into account, notable among these were the following; we thought we needed to safeguard financial stability, people’s lives and livelihoods in the wake of this COVID-19 pandemic. Secondly, we looked at the projection and we observed that over the forecast horizon which is eight quarters going forward, which is up to second quarter 2022, inflation was projected to steadily decline and to move towards the medium term target range, in fact, towards the very end, we see it touching the upper bound of that target range. Thirdly, we noted with concern that the economic conditions during the second quarter have actually worsened, we see that the prospects for growth, even for the rest of the year, are quite weak,” said Dr Kalyalya.