The Centre for Trade Policy and Development -CTPD says Zambia’s economic performance has continued to deteriorate on account of fiscal pressures limiting monetary policy interventions.
In a statement issued to Money FM News CTPD researcher Bright Chizonde said this is evidenced by the recent statement by the Bank of Zambia, Monetary Policy Committee.
Mr Chizonde said the statement presents a gloomy picture of the state of the economy; with government being forced to increase yield rates on Treasury bills in order to capture flitting subscriptions, triggering higher interest rates which will affect household borrowing and private sector investment; thereby compounding the economic problems.
He said during these hard-economic times, citizens need to know that that prices of goods and services are likely to go up as inflation breached the 8% upper limit.
“The only glimmer of hope is that the Bank of Zambia has proactively stepped up in confronting the economic challenges on the monetary side, this is commendable” He said.
Mr Chizonde has since commended the Bank of Zambia for providing monetary policy oversight despite increased pressure from the fiscal side, we join the Bank in stressing the need to implement urgent corrective measures to set the fiscal deficit, debt levels and debt service payments on a sustainable path.
“The main reason for the upward adjustment on the policy rate is that inflation is projected to rise and remain above the 6-8% target range due to lower maize output, continued elevated fiscal deficits, high debt service payments and the decline in international reserves-the same risks which are also exerting pressure on the exchange rate” He said.
He said the kwacha has come under severe pressure and depreciated from K11.96 to K14 between January and May 2019 adding that this depreciation of the Kwacha will increase interest payments on foreign debt and accelerate the depreciation of the foreign reserves, which according to the Bank of Zambia are currently at about US$1.4 billion since payments for principal and interest on external debt were the major factors accounting for the decline in reserves.

He said 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 the subscription rate for government bonds (which are longer term) fell by 4% despite an increase of 3% on Treasury bill subscriptions (most likely due higher yield rates) adding that in simple terms, it is becoming more expensive and difficult for government to borrow due to reduce confidence owing to limited fiscal discipline. Leading to the private sector, has slowly becoming a better alternative.
The Bank of Zambia attests that growth in private sector credit increased from 1.3% to 2.9% while growth in credit to government reduced from 3.3% to 1.1%.