Professional Documents
Culture Documents
BY
CALEB M. FUNDANGA
GOVERNOR- BANK OF ZAMBIA
EXECUTIVE SUMMARY
Monetary Policy
Inflation
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Interest Rates
Except the Average Savings Rate (ASR) for amounts above K100,000 which
remained unchanged at 4.8%, all the reported commercial banks’ nominal
interest rates increased in June 2009. The Weighted Average Lending Base
Rate (WALBR), the Average Lending Rate (ALR) and the 30-day deposit rate
for amounts exceeding K20 million increased to 22.4% (20.9%), 28.9%
(27.0%) and 5.6% (5.1%), respectively.
Real Sector
The stock of maize grain held by major millers in the country fell by 56.2%
to 26,842.8 metric tons (mt) from 61,241.2 mt in the first quarter of 2009.
On an annual basis, however, the stock of maize grain rose by 14.4% to
26,842.8 mt in March 2009 from 23,472.6 mt during the corresponding
period in 2008.
Preliminary data show that copper output fell by 8.2% (increased by 9.4%
last quarter) to 167,185.4 mt in the second quarter of 2009 from
182,148.7 mt recorded the previous quarter. This output level was,
1
Number in bracket is at end-March 2009.
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Similarly, cobalt output fell by 44.9% (9.5% decline last quarter) to 600.3
mt during the quarter under review from 1,090.0 mt last quarter. In
addition, cobalt output at 600.3 mt was 47.5% lower than 1,144.5 mt
produced during the same quarter last year.
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The appreciation was mainly due to reduced demand for foreign exchange,
particularly from foreign financial institutions, as signs of a global
economic recovery weakened risk aversion towards emerging markets.
Balance of Payments
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During the second quarter of 2009, the IMF completed the first and second
reviews under the PRGF arrangement and the Executive Board approved
US $256.4 million to assist Zambia cope with the global economic
meltdown. A total amount of US $162.2 million was disbursed in the
period under review.
Similarly, the overall financial performance and condition of the NBFIs was
rated fair during the quarter under review. On average, the leasing finance
institutions and bureaux de change sub-sectors reported adequate
regulatory capital and asset quality while earnings performance was
unsatisfactory with a fair liquidity position. However, two leasing finance
companies, one building society and one credit and savings institution had
regulatory capital deficiencies.
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INTRODUCTION
MONETARY POLICY
INFLATION
Overall Inflation
Second quarter overall inflation increased to 3.2% from the 2.3% recorded
in the first quarter of 2009 but was 0.2 percentage points higher than the
2.1% recorded in the second quarter of 2008. This development was
mainly attributed to the increase in quarterly food inflation, as non-food
inflation slowed down.
Food Inflation
Similarly, annual food inflation rose to 14.1% from 13.9% in March 2009
on account of price increases on breakfast and roller meal, white maize,
beef and poultry products, dried kapenta, and fresh vegetables.
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Non-Food Inflation
Quarterly non-food inflation slowed down to 3.0% from the 3.2% observed
at end-March 2009 but was 2.2 percentage points above the 0.8%
recorded at end June 2008. This was largely due to price reductions on air
fares for Lusaka/London as well as Lusaka/Ndola and Bed & continental
breakfast for 3 to 5 star hotels resulting from the favourable pass-through
effects of the appreciation of the Kwacha against global currencies.
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INTEREST RATES
Government Securities
Similarly, the foreign investors did not make any new purchases of
Government bonds. As a consequence, the amount of bonds held by
foreigners stood at 12.9% from 13.1% of the total Government bonds
outstanding.
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Except the Average Savings Rate (ASR) for amounts above K100,000 which
remained unchanged at 4.8%, all the reported commercial banks’ nominal
interest rates increased in June 2009. The Weighted Average Lending Base
Rate (WALBR), the Average Lending Rate (ALR) and the 30-day deposit rate
for amounts exceeding K20 million increased to 22.4% (20.9%)3, 28.9%
(27.0%) and 5.6% (5.1%), respectively.
As a result of the increase in inflation, all real interest rates, except the
real ALR, declined. The real 30-day deposit rate for amounts exceeding
K20 million declined to negative 9.7% (March 2009, negative 8.0%) while
the real ASR declined to negative 8.8% (March 2009, negative 8.3%).
However, the real ALR increased to 14.5% (March 2009, 13.9%) on
account of a relatively higher increase in its nominal rate.
Agriculture
Maize
Mining
Preliminary data show that copper output fell by 8.2% (increased 9.4% last
quarter) to 167,185.4 mt in the first quarter of 2009 from 182,148.7 mt
recorded the previous quarter. However, this output level was 20.3%
higher than 138,921.7 mt recorded in the corresponding quarter of 2007.
Similarly, cobalt output fell by 44.9% (9.5% decline last quarter) to 600.3
mt during the quarter under review from 1,090.0 mt last quarter. In
addition, cobalt output at 600.3 mt was 47.5% lower than 1,144.5 mt
produced during the same quarter last year.
Manufacturing
3
The numbers in brackets are for the previous quarter.
4
Millers require an estimated 55,000 mt of maize per month – Source: Millers Association of Zambia.
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Tourism
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Investment Pledges
The pledges when fully executed are expected to generate 6,068 jobs
(2,326 jobs as at end March 2009): real estate 2,192 jobs; manufacturing
1,528 jobs; tourism 744 jobs; construction 430 jobs; agriculture; 413 jobs;
service 194 jobs; education 157 jobs; transport 154 jobs; mining 140 jobs;
health 55 jobs; ICT 34 jobs and financial 27 jobs.
In the second quarter of 2009, the Kwacha was relatively stable against
the US dollar and appreciated by 1.0% compared with a depreciation of
9.3% recorded in the first quarter of the year. Hence, the average
interbank exchange rate of the Kwacha against the US dollar strengthened
to K5,281.64/US$ as at end-June 2009 from K5,337.18/US$ as at end
March 2009.
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the planned closures of mining operations would not go ahead. Over the
period, copper prices increased by 22.9% primarily due to strong Chinese
demand and traded above US$5,000.00 per tonne for the first time since
the fourth quarter of 2008.
The Kwacha’s weak performance against the other foreign currencies was
on account of stronger demand for these currencies on the international
market as improvements in the global economy dampened safe haven
flows into the US dollar. Consequently, the rand, euro and pound sterling
appreciated against the US dollar by 18.7%, 13.5% and 5.6%, respectively.
Balance of Payments
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During the second quarter of 2009, the International Monetary Fund (IMF)
completed the first and second reviews under the PRGF arrangement and
the Executive Board approved US $256.4 million to help Zambia cope with
the global economic meltdown. A total amount of US $162.2 million was
disbursed in the period under review.
Banking Sector
For the quarter under review, the sector remained adequately capitalised
and all the banks met the K12 billion minimum capital requirements for
banks and the capital adequacy ratios of 5% and 10% requirement for
primary regulatory capital and total regulatory capital, respectively. The
banking sector’s average capital adequacy ratios were 16.7% and 20.3%
for primary and total regulatory capital, respectively (March, 2009:16.5%
and 20.1%, respectively).
The overall banking sector’s asset quality in the quarter under review
deteriorated, with the gross non-performing loans as a percentage of total
loans increasing to 10.4% from 8.8% as at the previous quarter. However,
the ‘allowance for loan losses to minimum regulatory requirement’ remained
adequate at 100.3% (March, 2009: 102.1%), and the ‘allowance for loan
losses to gross non-performing loans’ increased to 80.6% (March, 2009:
78.5%).
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The sector’s liquidity condition was satisfactory with the liquidity ratio
increasing to 41.3% at the end of the quarter compared to 39.8% as at the
end of the last quarter and the ratio of ‘liquid assets to total assets’ to
34.0% from 33.2%.
The overall financial performance and condition of the NBFIs was rated
fair during the quarter under review. On average, the leasing finance
institutions and bureaux de change sub-sectors reported adequate
regulatory capital and asset quality while earnings performance was
unsatisfactory with a fair liquidity position. However, two leasing finance
companies, one building society and one credit and savings institution had
regulatory capital deficiencies.
Leasing Sub-Sector
Building Societies-Sub-Sector
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Micro-Finance Sub-Sector
Bureaux de Change
The United States (US) Dollar remained the most traded currency in the
quarter under review accounting for 94.6% followed by the South African
(SA) Rand with 3.5%. Total purchases and sales of the US Dollar
amounted to US$90.4 million (equivalent to K474,891 million) and
US$90.3 million (equivalent to K477,880 million) while those of the SA
Rand amounted to ZAR30.8 million (equivalent to K17,757 million) and
ZAR30.6 million (equivalent to K19,425 million) respectively.
The initial five year period for the Financial Sector Development Plan
(FSDP) approved by Cabinet in June 2004 lapsed at the end of June 2009.
An updated draft document for the FSDP Phase II project proposal has
been developed with technical support from a World Bank team of
consultants. This document, which includes a monitoring and results
based framework, has incorporated outstanding FSDP activities and the
recent World Bank and International Monetary Fund (IMF) Financial
Sector Assessment Programme (FSAP) recommendations for additional
short to medium term policy reforms. Once finalized, the FSDP Phase II
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document will provide the basis for seeking further technical and financial
support for an extended FSDP programme from cooperating partners and
other stakeholders.
In the interim, consultations for the extension to the second phase of the
FSDP are currently on going and the Bank of Zambia has since requested
the Ministry of Finance and National Planning for an administrative
extension pending finalization and consensus on the FSDP Phase II project
document.
During the quarter under review, the number of credit providers that
submitted credit data to Credit Reference Bureau Africa Limited (CRBAL)
increased by 11 to 31 from the previous period’s 20, out of a total of 44
credit providers. One bank and nine non-bank financial institutions
(NBFIs) started submitting data during the reviewed quarter. Meanwhile,
the number of credit providers that searched the database of CRBAL
increased by 6 to 35 from 29 as at end March 2009.
During the review period, one Payment System Participant and five
Payment Systems Businesses were recommended for designation as
outlined below:
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Cheques
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