Bank of Zambia

¡
¡ FOURTH QUARTER 2010 MEDIA BRIEFING

BY


CALEB M. FUNDANGA



Governor

BANK OF ZAMBIA


Presented
 at the Bank of Zambia
February , 2011

1
 INTRODUCTION
Bank of Zambia

l This brief reviews monetary policy outcomes;



l Other economic and financial sector

developments in Q4 2010; and


l In conclusion, we provide an inflation

outlook for Q1 2011


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 1.0 MONETARY POLICY
Bank of
Zambia
• Monetary policy focus in Q4 2010:


• Macroeconomic stability and achieving end-year

inflation target of 8.0%.


ð By containing growth of liquidity in banking system

within projected path.


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 2.0 INFLATION
Bank of Zambia

 Annual inflation rose marginally to 7.9% in December

(Sept 2010, 7.7%).


Ø Rise was mainly on account of the increase in
annual food inflation to 4.4% (Sept 2010,
2.8%), while non-food inflation slowed down to
11.3% (Sept 2010, 12.5%).
Ø
Ø Food inflation rose due to price increases on
cereals, vegetables, beef products and fish
attributed to seasonal supply factors.


Ø Non-food inflation slowed down on account of

lower price increases on several goods and
services, reflecting pass through effects of
the Kwacha exchange rate appreciation against
the US dollar.

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 2.0 INFLATION
Bank of Zambia

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 3.0 MONEY SUPPLY & DOMESTIC
CREDIT
Bank of Zambia

•
• Annual money supply growth was 30.8% (September 2010,
32.8%).


• Annual growth in total domestic credit increased to 22.9%

(September 2010, 13.5%).


¡ On sectoral basis, personal loans continued to

account for highest share of credit at 26.8%
followed by
 agricultural 17.6%;
 manufacturing 12.7%; and
 wholesale and retail trade 10.8%.





 6
 4. 0 INTEREST RATES
Bank of Zambia
Yield Rates On Government Securities


• Weighted average yield rates on Treasury bills increased to 8.2%

in December 2010 (in September 2010, 7.4%).


• Weighted average yield rate on bonds declined marginally to

11.3% (September 2010, 11.5%).


Commercial Bank Interest Rates



¡ Weighted average lending base rate fell to 19.4% (September 2010,

19.8%).
¡ Average lending rate fell to 26.4% (September 2010, 26.8%).
¡ Average savings rate for amounts above K100,000 remained
unchanged at 4.7%.
•


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 5. 0 FOREIGN EXCHANGE
MARKET
Bank of
Zambia
•

• The Kwacha appreciated against major currencies mainly due

to:


Ø Favourable macroeconomic fundamentals and

improvement in domestic supply of foreign
exchange; and


Ø  Sustained increase in international price of

copper, which stood at US $9,127.4 per tonne.


• The Kwacha appreciated by 2.1% against the US dollar to an

average of K4,731.52/US$.
•
• Commercial banks made spot purchases of US$1,417.2 million
from the non-bank public against sales of US$1,213.3
million. This translated into net purchases of US$203.8
million.


• BoZ participated in the market with a net purchase of US$58.5

million (Sept 2010, net purchase of US $67.5 million).

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
Bank of Zambia 5 . 0 Foreign Exchange Market ( cont )

9
Bank of Zambia 6.0 Real Sector

 Preliminary estimates indicate that Gross Domestic Product

(GDP) grew by 7.1% in 2010 from 6.4% in 2009.


¡ This growth in GDP was largely driven by the agricultural,

construction and mining sectors.


Ø The 2010 agricultural harvest was the highest recorded in

history, having produced over 2.8 million metric tonnes
(mt) of maize.


Ø The mining sector also benefitted from higher copper prices

and production levels.


Ø Growth in the construction sector emanated from increased

residential, commercial and public infrastructure
construction projects across the country by both
Government and the private sector.
§


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Bank of Zambia 6 . 0 Real Sector - Cont

 During the fourth quarter, positive growth was

recorded in the
 following sectors:


Ø Agriculture – as reflected in the rise in Food

Reserve Agency maize stocks at end-December 2010, to
982,784 mt from 162,956.0 mt at end-September 2010.


Ø Manufacturing - supported by increased output of

cement, clear beer, soft drinks and milk by 26.1%,
6.2%, 28.8% and 10.0% respectively.


Ø Mining - as reflected in increased cobalt production

by 1.5% to 2,401.8 mt, although copper output fell by
13.5% to 197,500.23 mt.


Ø Total investment pledges were estimated at US $1.0

billion in the fourth quarter of 2010 compared with
US $110.4 million in the third quarter.


Ø The pledges when fully executed are expected to

generate 22,532 jobs with the highest contribution
from services at 12,763 jobs followed by agro-
processing at 5,860 jobs.

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
 7 . 0 BALANCE OF PAYMENTS
( BoP )
Bank of
Zambia
• Overall BoP position deteriorated to a deficit of US
$71.1 million during the fourth quarter (surplus of
US $330.2 million in third quarter).


• This was due to unfavourable performance in both the

current account balance and financial account.


• The current account surplus declined to US $354.5

million from $238.9 million in third quarter largely
on account of a decline in the merchandise trade
surplus and widening of the net income deficit.


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 7 . 0 BALANCE OF PAYMENTS
( BoP )
Bank of
Zambia
 Table 1 : Trade Data in US $ millions ( f . o . b ), Q4 2009 - Q4
2010
2009 2010 2010 2010 2010
Q4 Q1 Q2 Q3 Q4*
Balance on Goods 389.1 568.2 532.3
849.6 771.4
General Merchandise Exports 1,400.5 1,658.0 1,641.3 1,939.2 2,040.9

Metals 1,126.1 1,389.7 1,343.3 1,610.2 1,728.5

Copper 1,067.1 1,311.5 1,267.2 1,534.9 1,654.3

Cobalt 59.0 78.2 76.1 75.3 74.2

Non-Traditional 274.4 268.2 298.0 329.0 312.4

Other Exports 18.6 28.9 39.4 44.6 39.0

Imports -1,030.0 -1,118.7 -1,148.4 -1,134.3 -1,308.4

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 7 . 0 BALANCE OF PAYMENTS ( BoP ) Cont ’ d …

•
• Merchandise export earnings, rose by 5.2% to US $2,040.9
million (US $1,939.2 million in third quarter) due to an
increase in metal exports earnings by 7.3% to US $1,728.5
million.


• However, merchandise imports, at US $1,308.4 million were

15.4% higher than US $1,134.3 million recorded in the
third quarter of the year.


• The capital and financial account deficit widened to US

$354.5 million (US $238.9 million in third quarter).


• This was largely due to unfavourable performance in the

financial account following an increase in short - term
deposits abroad by the private sector.


¡
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
 8 . 0 IMPLEMENTATION OF THE
ECONOMIC PROGRAMME
Bank of Zambia

• A follow-up IMF Mission visited the country from 28th October to 3rd
November 2010.


o The mission and the Zambian authorities agreed on macroeconomic

policies and structural measures for the remainder of 2010 and
2011 under the Extended Credit Facility (ECF) arrangement.


Ø The IMF Executive Board meeting which was held on 10th

December 2010, completed the fifth review of Zambia’s
economic programme.


Ø This resulted in the immediate disbursement of SDR 18.395

million (about US$28.3 million), bringing total
disbursements under the ECF arrangement to SDR 201.7
million (about US$310.3 million).


¡ The Net Domestic Assets of the Bank of Zambia, and the Unencumbered
International Reserves under the ECF arrangement were observed
as at end-December 2010. However, the performance criteria on
Net Domestic Financing of Government was not met.


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 9.0 DEVELOPMENTS IN FINANCIAL
SECTOR
Bank of Zambia

• The overall financial condition and performance of banking

sector was satisfactory in the fourth quarter of 2010.


Ø On aggregate, the banking sector’s capital position,


asset quality and liquidity were satisfactory.
Ø However, the earnings performance declined, largely
on account of an increase in the non-interest
expenses (rise in staff emoluments, reorganization
costs and additional tax provisions).


• TheNBFIs
overall financial performance
was rated fair.
and condition of the

Ø The sector was adequately capitalised with ‘fair’

asset quality while earnings performance was
rated ‘satisfactory’.


 As part of the overall objective to enhance financial

inclusion under the FSDP, the BoZ undertook provincial
sensitisation tours on savings and credit covering all
the nine provinces of Zambia.
 16
 10 . 0 INFLATION OUTLOOK FOR
FIRST QUARTER 2011
Bank of Zambia

 Annual overall inflation is projected to remain above 8.0%

during the first quarter of 2011, mainly due to the
following factors:
 


Ø Seasonal increase in selected food items including

fish, fresh vegetables and beef; and


Ø The lagged effects of money supply growth in 2010.



• The Bank of Zambia will continue to undertake appropriate

monetary policy actions to contain reserve money growth
within the programmed path, with a view to slow down
inflationary pressures.


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¡

¡ I THANK YOU FOR YOUR ATTENTION

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