Zambia’s central bank says it is concerned over recent economic developments in the country, particularly the current high inflation rate, volatility of its currency, Kwacha, and financial instability.
Francis Chipimo, the deputy governor of operations at the Bank of Zambia, highlighted some of the issues that were keeping the central bank vigilant and expressed hope that they would be rectified this year.
Chipimo stated that the inflation rate, which stands at 13.1% as of December 2023, is considerably higher than the target set by the central bank, which was to maintain annual inflation in the range of 6% to 8%. Nonetheless, he stated that the bank was unwavering in its aim to return inflation to the target range.
“Weather-related shocks, weakness in the exchange rate, and higher administered prices on electricity and fuel have all been important drivers of higher inflation. The Bank has taken measures to tighten monetary policy by adjusting both the policy rate and the statutory reserve ratio.
“In 2023, the policy rate was adjusted upwards by two percentage points from 9 percent at the beginning of the year, to 11 percent and the statutory reserve ratio by eight percentage points from nine percent to 17 percent by end of the year,” he said.
Regarding currency rate volatility, Chipimo believes that the current trend will reverse in 2024 and that there is new hope due to the recently announced resolution of the Konkola Copper Mines (KCM) and Mopani disputes. He clarified that as the economy continued to recover from the COVID-19 pandemic, the decreasing supply of foreign exchange on the market in response to increased demand had substantially driven the present trend.
“The poor performance of the mining sector, in terms of lower production and export earnings, is a particular source of concern,” Chipimo said.
Also, the bank recently unveiled its payment system vision and strategy for the years 2024–2027, with the goal of modernising the country’s payment system to facilitate the growth of a digital economy that operates around-the-clock through interoperability, innovation, adoption of global standards, and smooth payment processing.
Zambia has been occupied with restructuring its foreign debt since it defaulted three years ago during the COVID-19 pandemic, but its restructuring efforts have been beset by delays. It is one of five African countries on the default list.