Central Bank Governor Denny Kalyalya told a media briefing yesterday that the second quarter of 2019, real GDP grew by 2.3%, down from 3.9% during the corresponding period in 2018.
“Contraction in mining output, construction as well as transport and storage accounts for the slowdown in real GDP growth,” he said.
Dr Kalyalya said economic activity is projected to remain subdued and the recovery is weak.
“In 2019, GDP is projected to significantly decline to about 2.0% from 4.0% in 2018 premised on projected contraction in agriculture, constrained electricity generation, and lower than anticipated mining output. This calls for concerted efforts by all economic agents to put back on an upward and strong growth path,” he said.
Zambia has $3 billion of Eurobonds outstanding. Its ratio of debt to gross domestic product(GDP) will rise to 92% by the end of 2019, triple the figure from 2015, according to the International Monetary Fund.
The situation is exacerbated by the government’s struggle to rein in spending and a severe drought, which is hammering agricultural output and hydropower generation.
The Bank of Zambia has decided to revise upwards the Monetary Policy Rate by 125 basis points to 11.50%. The decision was arrived at by the Monetary Policy Committee at its Meeting held on November 18 -19, 2019.
Dr Kalyalya said inflation is projected to remain above the upper bound of the 6-8% target range over the entire forecast 2019 to third quarter of 2021 due to heightened upside risks.
He said the decision to raise the Policy Rate is intended to counter inflationary pressures and bring inflation back to the target range in the medium term and hence support overall macroeconomic stability.
Dr Kalyalya added, “the MPC was mindful of the marked deceleration in growth and risks to financial stability. In this regard, the MPC recognised the importance and need for other tools that include macro prudential and fiscal policy measures to address these risks.”
He stated, “Furthermore, and as indicated in previous MPC Statements, monetary policy alone is not sufficient to address prevailing economic challenges and to restore macroeconomic stability. It must be complemented by corrective fiscal and structural policy measures.”
“In October, overall inflation rose to 10.7% as food inflation increased to 13.3% while non-food inflation slowed down to 7.8%,” Dr Kalyalya said.
“On account of heightened upside risks, inflation is projected to remain above the upper bound of the 6-8% target range over the entire forecast horizon (Q4 2019 – Q3 2021.”
He stated that the risks, which manifest through the expectations and exchange rate channels, include persistent high food prices, electricity shortages leading to extended load shedding, slower than anticipated progress on fiscal consolidation and high external debt service payments.
Dr Kalyalya said decisions on the Policy Rate will continue to be guided by inflation forecasts and outcomes, identified risks, and progress in the execution fiscal consolidation measures.