Bank of Zambia Governor Dr Denny Kalyalya says Zambia’s economy is projected to contract by 2.6 percent in 2020 from a projected 1.9 percent in 2019.
Dr Kalyalya said at a media briefing that this is the first contraction in real Gross Domestic Product in more than 20 years.
He said with the COVID-19 pandemic, the already challenged domestic macroeconomic environment has worsened adding that the significant reduction in consumer and investment spending due to the disruptions in business operations is expected to weigh on economic activity.
Dr Kalyalya said so far, the sectors known to be most adversely affected are construction, wholesale and trade, tourism, manufacturing, electricity as well as mining.
Meanwhile, Dr Kalyalya said the Central Bank has revised downwards the Monetary Policy rate by 255 points to 9.2 percent from 11.5 percent.
He said this is to mitigate the adverse impact of the COVID-19 on financial sector’s stability, economic activity and ultimately on people’s livelihoods.
Dr Kalyalya has explained that the cut also complements the other broader set of measures already announced by the Central Bank to mitigate the impact of COVID-19.
He said that although the path for inflation is higher than the February 2020 forecast, it is expected to trend towards the upper bound of the 6 to 8 percent medium-term target range at the end of the forecast horizon.
And on the depreciation of the local currency, Dr Kalyalya said the Kwacha, which had exhibited relative stability over the first two months of the year following significant tightening of monetary policy in November and December 2019, came under intense pressure in March.
He said this reflected the unresolved macroeconomic challenges associated with high debt service and debt levels, rising fiscal deficits as well as declining international reserves.
Dr Kalyalya said market attention to these was heightened by the publication of sovereign credit downgrade at this time.
He said the COVID-19 outbreak has since compounded these exchange rate pressures.
Dr Kalyalya said during the period, the Kwacha depreciated by 9.6% against the US dollar to a quarterly average of Kl5.18/US dollar.
He said with the mounting pressure in March, the Kwacha ended the quarter with a year-to-date rate of depreciation of 28.9% to K 18.1 1/US dollar.
Dr Kalyalya said to moderate exchange rate pressures, the Bank of Zambia provided support to the market and in addition, the Bank revised rules governing the operations of the interbank foreign exchange market to support its smooth functioning, strengthen market discipline, and provide a mechanism for addressing heightened volatility in the exchange rate in periods of stress.