The recently announced increase in the Monetary Policy Rate by the Bank of Zambia indicates that Zambia’s economic performance has continued to deteriorate on account of fiscal pressures limiting monetary policy interventions, a Trade and Policy Think Tank has said.
Bright Chizonde, a Researcher at the Center for Trade Policy and Development says Zambia’s inflation is expected to increase while exchange rate depreciation will further increase debt service payments with economic growth projected to showdown.
Mr. Chizonde said Zambians are therefore expected to continue facing hard economic times, with poverty levels escalating if fiscal corrective measures are not urgently implemented.
The Bank of Zambia last week raised the Monetary Policy Rate to 10.25 percentage from 9.75 percent in a bid to stabilize the deteriorating currency and support macroeconomic stability.
He noted that in the absence of corrective measures on the part of the Ministry of Finance, as indicated by the ever-widening fiscal deficit now at 7.6% of GDP instead of the targeted of 6.1%, which reflects higher than programmed spending on capital projects and debt servicing on external and domestic loans, Zambia continues to register reduced investor confidence and negative market sentiments.
Mr. Chizonde said this has increased pressure on monetary policy as indicated by an increase of yield rate on government securities.
“During the first quarter of 2019, Treasury bill yield rate increased to 22.6% from 21.4% due to negative market sentiments associated with Zambia’s sovereign credit rating downgrade in February 2019. Demand for government securities at auctions remained weak during the first quarter of 2019”, He said.
He has since recommended for urgent and effective implementation of fiscal adjustment measures in order to put fiscal deficits, debt levels and debt service payments on a sustainable path.
Mr. Chizonde said this is the only way to restore both domestic and international investor confidence adding that government should engage in extensive consultations with technocrats, private sector players, international Institutions such as the IMF and indeed local and international civil society organizations in order to find remedial and long-term solutions to the current economic situation.