By Brightwell Chabusha
The Bank of Zambia (BoZ) has projected a strong rebound of the GDP to 5.5% this year.
BoZ Governor Christopher Mvunga said the recovery is on the back of policy support and the gradual easing of restrictive measures owing to the anticipated widespread COVID-I9 vaccination.
Mr Mvunga said growth is projected to be uneven in the medium term.
He added that growth will be highly uncertain depending on the extent of economic damages, effectiveness of policy support and severity of the current health shock.
The Governor said this today when he delivered a Monetary Policy Committee Statement.
“As anticipated, the global economy contracted in 2020 on the back of lockdown measures to contain the COVID-19 pandemic. The lockdown measures caused severe disruptions to global supply chains and resulted in a slump in consumption and investment spending. Consequently, global real GDP is estimated to have shrunk by 3.5%. However, a strong rebound to 5.5% in 2021 is projected,” Mr Mvunga said.
“This recovery is on the back of policy support and the gradual easing of restrictive measures owing to the anticipated widespread COVID-I9 vaccination. In the medium-term, growth is projected to be uneven and highly uncertain contingent on the extent of economic damages, effectiveness of policy support and severity of the current health shock. Indicators of domestic economic activity point to a less severe contraction, but weak recovery projected in the medium-term.”
The Governor added that the high frequency indicators of domestic economic activity point to a less severe contraction in real GDP in the last half of 2020 following the partial relaxation of COVID-19 restrictions.
He said nearly all the monitored indicators in the Bank of Zambia Survey of Business Opinions and Expectations improved over the third quarter readings.
Mr Mvunga further stated that the Stanbic Bank Zambia Purchasing Manager’s Index, also signaled a softer deterioration in the private sector business environment.
“The forecast period or horizon is eight quarters ahead, that is, the first quarter of 2021 to the fourth quarter of 2022,” he said.
Mr Mvunga said in 2021 and the medium-term, domestic real GDP is projected to recover supported by positive growth in mining, electricity, gas and water as well as information and communication sectors.
He however mentioned that uncertainty surrounding the resurgence of COVID-19 infections and the narrow fiscal space pose significant downside risks to this growth outlook.
“This is consistent with the weaker January 2021 Stanbic Bank Zambia Purchasing Manager’s Index,” he said.
Meanwhile, Mr Mvunga disclosed that market interest rates continued to trend downwards last year, influenced largely by the accommodative monetary policy stance.
He explained that the commercial banks’ average lending rate declined to 25.1% in December from 25.7% in September.
“The savings rate for 180-day deposits also reduced to 9.8% from 10.3%. Similarly, the composite yield rate on Treasury bills declined to 21.2% from 22.7%. The composite Government bond yield rate, however, rose to 32.9% from 32.3%, reflecting weaker demand for longer-dated instruments,” he explained.
“Credit to the private sector moderates further, but money supply continues to expand. Credit to the private sector moderated to 8.5% in December, year-on-year, from 13.8% in September due to strict lending conditions as banks sought to curb clevated credit default risk. However, credit to Government continued to grow at a strong pace underpinned by issuance of Government securities, particularly for procurement of agricultural inputs under FISP and clearance of fuel arrears to suppliers. This continued to contribute to the sustained strong annual growth in money supply (M3)’, at 46.4%, in December 2020.”
And the Governor disclosed that BoZ has adjusted the Monetary Policy Rate upwards by 50 basis points to 8.5%.
He said the adjustment was necessitated by the escalation in inflationary pressures, which are pushing inflation further away from the upper bound of the 6-8% target range.
“The decision balances the need to contain rising inflation and anchor inflation expectations against the efforts made to support financial system stability and growth. Ensuring that inflation remains well anchored in the medium-term is essential to moderate fragilities in the financial sector and support economic recovery. In addition, the implementation of a strong fiscal policy adjustment, whose key parameters are clearly outlined in the Government‘s Economic Recovery Programme, is critical in restoring macroeconomic stability,” Mr Mvunga said.