BANK of Zambia (BoZ) Governor Dr Denny Kalyalya says players are discouraged from entering Zambia’s market because it was the first country to default on its debts during the COVID-19 pandemic.
And Dr Kalyalya says having more production exports can ensure the country a stable economy.
Meanwhile, Dr Kalyalya says the Bank of Zambia’s monetary policy committee has maintained the monetary policy rate at 9.0 percent.
Speaking during the announcement of the monetary policy rate, Wednesday, Dr Kalyalya said there was a cloud hanging over Zambia which needed to be dealt with.
“The constraints that we are having on our economy, the cloud that has been hanging on us, because everybody now, when they in financial sectors who refer to Zambia are saying you are the first country to default under COVID conditions. That is discouraging players to come into our market and so that’s why we need to deal with this matter to open our economy to more people to participate. Competition is important but the extent to which that is happening in our economy is limited,” he said.
And Dr Kalyalya said more production exports would assure the country of a more stable currency.
“When we have more production exports, that’s what will assure us a more stable currency. This living hand to mouth pressure will not stop. We should also do the diversification which we talk about. Copper now is a much demanded commodity because of its use in electric cars and some of these electrical components but it is subject to these fluctuations. We can hedge ourselves by broadening our base from which we earn our foreign exchange. That will assure us a more stable currency. There is also another aspect, that is sentiments. When people feel bad about Zambia, they withhold what they are supposed to do. That also affects our economy,” he said.
Dr Kalyalya said in major economies, economic growth was expected to slow down to 4 percent in 2022 and 3.8 percent in 2023 due to weaker prospects for growth.
“We see that growth has started to come up but there is still some fragility to that growth. And we noted that the financial system is still not quite as robust as we would like it to be but it is showing some resilience. We note that global economic recovery accelerated in the fourth quarter due to improved vaccinations in many of the developed economies. It’s fair to say that towards the end of the year arising from omicron, there were some disturbances which brought in some breaks in terms of that projected growth but for the fourth quarter as such growth accelerated. So we see that these economies including ours to some extent benefitted from business optimism and consumer confidence. And so trade was beginning to roll,” he said.
“We see that in 2020 in terms of actual growth, that was 5.9 percent. If you recall, in 2020 the global economy recorded a recession. Now since then, we have seen that economic growth is expected to slow down to 4 percent in 2022 and 3.8 percent in 2023 due to weaker prospects for growth in major economies, disruptions such as movements. Although it’s starting to open up now but obviously that has already made a dent in terms of growth.”
Meanwhile, Dr Kalyalya announced that due to a sharp decline in inflation, the monetary policy committee decided to maintain the monetary policy rate at 9 percent.
“The decision of the committee was to maintain the policy rate at 9 percent. There are a number of factors that we took into account but chief among these is a sharp decline in inflation which had been observed at our last meeting in November and then we cast our eyes over the next eight quarters. And we noted that inflation was trending towards the six to eight percent target range that we are focusing on. It was important for us to look at inflation and what is going on in the wider economy,” he said.
Dr Kalyalya said securing the IMF deal was key to having further declines in inflation.
“Inflation is projected to continue trending towards the six to eight percent range over the next eight quarters because of the benefits of securing an IMF programme. With the fund programme in hand, we will have an opportunity to negotiate our external debt such that we get the relief that we so much need to enable us to move forward. So that is quite a big benefit that would arise from there. The other one is what we call balance payment support, unlike project pay support. This is like money given to the treasury to decide on how it applies it, so it is basket funding,” he said.
“There is another aspect that we have observed and I’m sure you have in some of your conversations as journalists [heard] that some of the investors who have been eyeing Zambia have been staying on the fence saying ‘no we are not sure where we are going’. You have also seen literally all the rating agencies rating us poorly and that affects the cost of financing for our economy. So with the IMF programme, all this opens up and that would have beneficial effects even on our inflation. It is a way to begin to breathe to move forward.”
Meanwhile, Dr Kalyalya said growth was expected to rise to 3.5 percent and 3.6 percent in 2022 and 2023, respectively.
“On our domestic front, we see that GDP is estimated to have grown by 3.5 percent in the third quarter of 2021 against a contraction of three percent in the corresponding quarter in 2020. That means the third quarter of 2020 was a decline and so you can very well appreciate that a growth of 3.5 percent much as the number might appear low, but given where we are coming from that’s quite a good achievement. Two sectors stood out for this growth which is information and communication,” said Dr Kalyalya.
“We also do some work here at the bank which is the Bank of Zambia quarterly survey or business opinion and expectations. This also suggests some recovery in economic activity driven mainly by increased consumer demands during the festive season and enhanced investor confidence. In 2022 and 2023, we expect growth to rise to 3.5 percent and 3.6 percent respectively. This growth is positive but I think it is important also to look at what could affect this growth in the downward direction. We see that popping up quite prominently is the uncertainty surrounding the resurgence of the new COVID variant. The other one which is weighing on our projected growth is the anticipated recovering economies of major trading partner countries.”