MONETARY POLICY COMMITTEE STATEMENT FOR THE FOURTH QUARTER OF 2021 GOVERNOR'S PRESENTATION TO THE MEDIA FEBRUARY 16, 2022
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MONETARY POLICY COMMITTEE STATEMENT
FOR THE FOURTH QUARTER OF 2021
GOVERNOR’S PRESENTATION TO THE MEDIA
FEBRUARY 16, 2022
OUTLINE OF PRESENTATION
1. Decision of the Monetary Policy Committee
2. Global Economic Growth
3. Domestic Economic Activity and Outlook
4. Inflation Outturn and Outlook
5. Government Securities Market
6. Interest Rates
7. Domestic Credit
8. Money Supply
9. Fiscal Policy
10. Current Account
11. Gross International Reserves
12. Foreign Exchange Market
13. Conclusion
2DECISION OF THE MONETARY POLICY COMMITTEE At its Meeting held on February 14-15, 2022, the Monetary Policy Committee decided to hold the Policy Rate at 9.0 percent. In arriving at this decision, the Committee took into account the following factors: • a sharp decline in inflation since the November MPC Meeting and the projection indicating that it will continue to trend towards the 6-8 percent target range over the forecast period; and • the need to continue supporting growth and maintaining financial stability. 2/16/2022 3
GLOBAL ECONOMIC GROWTH
Global economic recovery accelerated in the Chart 1: Pre- and Post-COVID-19 Global GDP
fourth quarter due to improved vaccinations Growth Projections (annual, percent)
which allowed for the easing of COVID-19 7.0
restrictions.
5.0
Most economies benefitted from increased 3.0
business optimism and consumer confidence,
strengthened global demand, and rising 1.0
international trade.
-1.0
In 2021, the global economy grew by 5.9 percent.
-3.0
However, global economic growth is expected to
slowdown to 4.4 percent in 2022 and 3.8 percent -5.0
2017
2021e
2014
2015
2016
2018
2019
2020
2022f
2023f
in 2023 due to weaker prospects for growth in
major economies, lingering supply disruptions,
and possible emergence of new and highly World Pre-COVID
Post-COVID-Oct-21 Post-COVID-Jan-22
transmissible COVID-19 strains.
Source: IMF World Economic Outlook, January 2022
2/16/2022 4DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK Real GDP grew by 3.5 percent in the third quarter of 2021 against a contraction of 3.0 percent in the corresponding quarter of 2020 (Chart 2). Construction as well as information and communication contributed to the recovery. Results from the Fourth Quarter 2021 Bank of Zambia Quarterly Survey of Business Opinion and Expectations suggest some recovery in economic activity, driven by increased consumer demand during the festive season and enhanced investor confidence (Chart 3). Similarly, the Stanbic Purchasing Manager’s Index (PMI) signalled a healthier business environment for the private sector (Chart 4). In January 2022, however, the PMI declined to 49.9 reflecting a deterioration in the business environment occasioned by the fourth wave of the COVID-19 pandemic. 2/16/2022 5
DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK
Chart 2: Contribution to Quarterly Real GDP Growth by Selected Industries ( percent)
10.0
8.1
8.0
6.0 3.5
0.5
4.0
2.0
0.0
-2.0
-4.0 -3.1
-6.0
-8.0
-10.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3**
2018 2019 2020 2021
Agriculture Mining Electricity Construction
Wholesale & retail Transport Accommodation ICT
Financial & insurance Public admin Education GDP growth
Source: Zambia Statistics Agency 6DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK
Chart 3: Business Opinions Survey Responses
2020_Q4 2021_Q3 2021_Q4 Average
output
2
inventories 1 volume of sales
0
-1
labour demand -2 volume of service
-3
-4
capacity utilisation domestic sales
new orders profitability
level of investment
*Note: The Survey indicators are standardised net balances with mean=0 and standard deviation=1. A value within the black circle
entails weaker economic conditions than historical average and a value outside the black line signifies an improvement over the
historical average. 7DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK
Chart 4: Purchasing Manager’s Index for Zambia
55
51.5
51.2 51.8
50
49.9
45
40
35
30
Apr
Apr
Jan
Feb
Jan
Feb
Jan
Sep
May
May
Sept
May
Sept
Mar
Mar
Dec
July
Dec
Dec
Aug
Aug
Jun
Oct
Nov
Oct
Nov
Aug
Jul
Jun
Jun
Oct
Nov
Jul
2020 2021 2022
2/16/2022 8DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK For 2021, the economy is projected to have grown by 3.3 percent on account of strong performance in the agriculture, information and communication, as well as wholesale and retail trade sectors. In 2022 and 2023, growth is expected to rise to 3.5 percent and 3.6 percent, respectively (Chart 5). This will be underpinned by strong performance in the financial and insurance, information and communication, wholesale and retail trade, education as well as the mining sectors. Key downside risks to the growth outlook include uncertainty surrounding the resurgence of new COVID-19 variants, amid low vaccination rates, and lower than anticipated recovery in economies of major trading partner countries. 2/16/2022 9
DOMESTIC ECONOMIC ACTIVITY AND OUTLOOK
Chart 5: Annual Real GDP Growth Forecast ( percent)
10
8
6
4
2
0
-2
-4
2015
2021p
2011
2012
2013
2014
2016
2017
2018
2019
2020
2022f
2023f
2024f
MOF November 2021 IMF ECF Mission December 2021 FocusEconomics (consensus) January 2022
Source: : Ministry of Finance and National Planning, Zambia Statistics Agency, IMF, Focus Economics
2/16/2022 10INFLATION OUTTURN AND OUTLOOK In the fourth quarter of 2021, inflation declined by 4.9 percentage points to an average of 18.9 percent (Table 1, Chart 6). The appreciation of the Kwacha against the US dollar and the dissipation of base effects, particularly in prices of meat and poultry products, largely accounted for the decline in inflation. Food inflation reduced to an average of 24.5 percent from 30.8 percent while non-food inflation declined to 12.5 percent from 15.6 percent. In January 2022, inflation declined to 15.1 percent from 16.4 percent in December 2021 largely due to continuing base effect as well as increased supply of selected food items, mainly fruits and vegetables. 2/16/2022 11
INFLATION OUTTURN AND OUTLOOK
Table 1: Inflation outcomes (%)
Q3 Q4
Average Q4 2020 Q1 2021 Q2 2021
2021 2021
Overall Inflation
17.6 22.2 23.5 23.7 18.9
Food Inflation
17.2 27.0 29.0 30.8 24.5
Non-food Inflation
18.0 16.6 17.2 15.6 12.5
Q2 Q3
End Period Q3 2020 Q4 2020 Q1 2021
2021 2021
Overall Inflation
19.2 22.8 24.6 22.1 16.4
Food Inflation
20.2 27.8 31.2 29.6 19.9
Non-food Inflation
18.1 17.0 17.1 13.6 12.1
2/16/2022 12INFLATION OUTTURN AND OUTLOOK
Chart 6: Inflation and its Components, y-o-y (%)
32 32
30 30
28 28
26 26
24 24
22 22
20 20
18 18
16 16 16.4
14 14 15.1
12 12
10 10
8 8
6 6
4
4
Q2 2020
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Apr-21
Jan-21
Nov-21
Jan-22
Feb-21
Jun-21
Aug-21
Mar-21
Jul-21
Sep-21
Oct-21
Dec-21
May-21
Inflation Target Range Overall Inflation Inflation Target Range Overall Inflation
Food inflation Non-food inflation Food inflation Non-food inflation
2/16/2022 Source: Zambia Statistics Agency 13INFLATION OUTTURN AND OUTLOOK
▪ Inflation is projected to continue trending towards the 6-8 percent target range over
the next eight quarter (Q1 2022 – Q4 2023) mainly due catalytic benefits of securing
an IMF programme, such as, access to budget support, a reduction of external debt
burden through restructuring, and unlocking of investments, as well as the positive
impact of higher copper prices, mainly through the exchange rate. The dissipation of
base effects will also contribute to the projected fall in inflation.
▪ In 2022, inflation is projected to decline to an average 13.2 percent from 15.0 percent
projected during the November 2021 MPC Meeting.
▪ In 2023, inflation is expected to reduce further to an average of 7.3 percent from 9.3
percent predicted in November 2021.
14INFLATION OUTTURN AND OUTLOOK
However, there are upside risks to the inflation outlook, which include:
▪ increase in crude oil prices;
▪ possible lower crop production due to adverse weather conditions;
▪ lingering supply chain bottlenecks induced by the COVID-19 pandemic;
▪ tightening of monetary policies in major economies in response to rising inflation in
their jurisdictions; and
▪ the transition to cost reflective electricity tariffs may also have short-term effects on
inflation although over the medium to long-term, this is expected to have positive
economic benefits through, for example, increased investment, supply, access to
electricity, and exports.
2/16/2022 15GOVERNMENT SECURITIES MARKET Demand for Government securities, particularly for bonds, remained strong. The subscription rates for Government bonds and Treasury bills were 185.1 percent and 120.0 percent compared to 278.3 percent and 138.0 percent in the previous quarter, respectively. Underlying the strong demand were high yields and improved liquidity conditions. The outstanding stock of Government securities increased by 1.7 percent to K193.0 billion (Chart 7). Government bonds accounted for 81.9 percent of the outstanding stock. Non-resident holdings of Government securities rose to 28.8 percent of the outstanding stock from 25.9 percent in the previous quarter, with 99.4 percent of their holdings in Government bonds. 2/16/2022 16
GOVERNMENT SECURITIES MARKET
Chart 7: Stock of Govt Securities (K’billion)
190
175
160
145
130
115 155.3 158.1
144.8
100
85 107.9
97.2
85.6
70
76.6
55 59.4 65.2
40
25 33.1 33.0 35.9 35.4 34.4 34.9
20.9 21.4 25.9
10
Dec-19
Dec-20
Sep-21
Dec-21
Sep-20
Jun-20
Jun-21
Mar-20
Mar-21
T-bills Bonds
2/16/2022 17INTEREST RATES
• Consistent with the increase in the Policy Rate from 8.5 percent to 9.0 percent in
November 2021, the overnight interbank rate rose, closing the quarter at 8.93
percent in December from 8.10 percent in September (Chart 8).
• However, it was contained within the bounds of the Monetary Policy Rate Corridor
throughout the quarter.
• Yield rates on Government securities trended downwards for the fourth successive
quarter, falling to 13.0 percent and 21.9 percent in December from 15.6 percent and
23.9 percent in September for Treasury bills and Government bonds, respectively
(Chart 9).
2/16/2022 18INTEREST RATES
Chart 8: Interbank Rate and BoZ Policy Rate (%)
14.5
13.5
12.5
11.5
Percent
10.5
9.5
8.5
7.5
6.5
Jan-20
Apr-20
Apr-21
Jul-20
Nov-20
Jan-21
Nov-21
Jan-22
Jun-20
Aug-20
Jun-21
Aug-21
Feb-20
Mar-20
Jul-21
Sep-20
Feb-21
Mar-21
Sep-21
Dec-21
Feb-22
Dec-19
Oct-20
Dec-20
Oct-21
May-20
May-21
Policy Band Daily Average O/N Interbank Rate BOZ Monetary Policy Rate (Target)
2/16/2022 19INTEREST RATES
Chart 9: Nominal Interest Rates (%)
However, commercial banks’ lending 40.0
rates remained broadly unchanged at 35.0
25.9 percent in December. 30.0
25.0
In January 2022, the weighted average
20.0
yield rate on Government bonds further
15.0
reduced to 22.6 percent while the
weighted average yield rate on 10.0
Treasury bills increase to 15.0 percent. 5.0
0.0
Mar-19
Mar-20
Mar-21
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Sep-19
Sep-20
Sep-21
Average Lending Rate
Weighted Weighted Interbank Rate
180-day Deposit Rate
Weighted Avg TB Yield Rate
Weighted Avg Bond Rate
Policy Rate
20DOMESTIC CREDIT
In December growth in Kwacha lending Chart 10: Contribution to Y/Y Domestic Credit growth
to the private sector moderated to 19.4 45 55.0
percent, year-on-year, from 35.9 40 50.0
35 45.0
percent in September (Chart 10). 40.0
30 35.0
25 30.0
This was mainly on account of reduced 20 25.0
15 20.0
disbursements under the Targeted 15.0
10
Medium Term Refinancing Facility as 5 10.0
5.0
available funds were nearly exhausted. 0 0.0
-5 -5.0
-10 -10.0
Lending to Government increased by
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Jun-17
Jun-18
Jun-19
Mar-17
Mar-18
Mar-19
Mar-20
Jun-20
Jun-21
Mar-21
19.4 percent, year-on-year, in
December compared to 26.1 percent in
Gross Claims on Central Government
September. The slowdown is largely
Private Sector
explained by reduced loans and Gross Domestic Credit Growth (RHS)
advances to Government. Exchange Rate Adjusted Gross Domestic Credit
2/16/2022 21MONEY SUPPLY
Chart 11: Money Supply Growth (y/y), Percent
Growth in money supply (M3) slowed 60.0
down significantly to 4.3 percent in 55.0
December 2021, year-on-year, from 50.0
11.2 percent in September (Chart 45.0
40.0
11). 35.0
30.0
The slow down in growth reflects 25.0
deceleration in domestic credit and 20.0
15.0
decline in international reserves, 10.0
driven by net foreign exchange sales 5.0
to the market and debt service. -
Dec-19
Dec-20
Dec-21
Sep-20
Sep-21
Jun-20
Jun-21
Mar-20
Mar-21
y/y Growth Rate y/y EXR_Adj M3 Growth
2/16/2022 22FISCAL POLICY Preliminary estimates indicate that the fiscal deficit in 2021 was broadly in line with the target due to strong revenue performance despite expenditure (excluding amortisation) exceeding the target. Total revenue and grants exceeded the target mainly on account of higher tax collections from the mining sector. The fiscal deficit is projected to narrow to 6.7 percent in 2022, 6.3 percent in 2023, and 5.2 percent in 2024 as revenue performance is enhanced, expenditure controls are strengthened, and an IMF Programme, that catalyses the mobilisation of external budget support, is secured. Key risks to the fiscal outlook include emergence of stronger variants of COVID-19 and effects of the adverse weather conditions on crop production, infrastructure, and people’s livelihoods. These are likely to put pressure on the budget through reduced revenues and higher than planned spending. 2/16/2022 23
CURRENT ACCOUNT
Preliminary data indicate that the current account surplus widened to US$0.7 billion (14.5
percent of GDP) from US$0.3 billion (5.0 percent of GDP) as exports expanded faster than
imports. Chart 12 : Current Account Balance
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Q4 2019
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Balance on Goods Balance on Services Balance on Primary Income
Balance on Secondary Income Overall Current Account Balance
2/16/2022 24GROSS INTERNATIONAL RESERVES
Gross international reserves Chart 13 : Gross International Reserves
3.0 6.0
decrease slightly to US$2.8 billion
(equivalent to 4.4 months of 2.5 5.0
Months of Import Cover
import cover) at end-December
2.0 4.0
2021 from US$2.9 billion
(equivalent to 4.9 months of 1.5 3.0
US$'billion
import cover) at end-September
1.0 2.0
2021 (Chart 13).
0.5 1.0
0.0 0.0
Sep-20
Sep-21
Mar-20
Mar-21
May-20
Jul-20
May-21
Jul-21
Jun-20
Jun-21
Jan-20
Feb-20
Aug-20
Dec-20
Aug-21
Dec-21
Apr-20
Jan-21
Feb-21
Apr-21
Nov-20
Nov-21
Oct-20
Oct-21
Gross (Unecumbered Reserves & Encumbered) Reserves at Market Rate in
U.S$ billions
Months of import cover for GIR (RHS)
2/16/2022 25FOREIGN EXCHANGE MARKET
• The Kwacha, which appreciated strongly Chart 14: Nominal Exchange Rates
during the third quarter, came under 5.0
pressure for most part of the quarter, 34.0
4.6
except in December when it was 32.0
4.2
supported by positive sentiments after a 30.0
3.8
Staff-Level Agreement was reached with 28.0
the IMF (Chart 14). 26.0 3.4
24.0 3.0
22.0 2.6
• The rate of appreciation reduced to 7.4 20.0
2.2
percent in the fourth quarter compared 18.0
1.8
to 17.5 percent in the previous quarter. 16.0
1.4
14.0
12.0 1.0
• Most of the pressure emanated from 10.0 0.6
higher demand for the importation of 8.0 0.2
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
strategic products such as fuel and
farming inputs while supply declined.
2/16/2022 26FOREIGN EXCHANGE MARKET
Chart 15: Supply and Demand for Foreign
• To help meet demand and dampen Exchange (US$’ million)
volatility in the exchange rate, the Bank 2,500.0 2,500.0
of Zambia continued to support the
market and sold a net of US$146.0 2,000.0 213 2,000.0
63
million (Chart 15). 20
1,500.0 1,500.0
78 13 153 238
• In January 2022, increasing demand
1,839.3
335
1,737.1
pressures continued and the Kwacha 1,000.0 1,000.0
1,614.1
1,265.7
1,252.3
1,241.8
1,203.8
depreciated by 2.9 percent against the
890.2
US $ to a monthly average of K17.27. 500.0 500.0
0.0 0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2020 2020 2020 2021 2021 2021 2021
Outstanding (Backlog) Demand (LHS)
Actual demand (LHS)
Supply - comm. bank purchases from market (RHS)
2/16/2022 Supply - including BoZ sales (RHS) 27FOREIGN EXCHANGE MARKET
Chart 16: Sectoral Net Demand for Foreign Exchange (US$’ million)
Wholesale and retail trade
Transport, storage and communications
Real estate, renting and business activities
Public administration and defence; compulsory social security
Other business activities
Mining and quarrying
Manufacturing
Households
Hotels and restaurants
Health and Social Work
Foreign Financials
Financial intermediation
Extraterritorial organizations and bodies
Electricity, gas and water supply
Education
Construction
Community and social service activities
Bureaux
Agriculture, Hunting, Forestry and Fishing
(300) (200) (100) 0 100 200 300 400 500
Q4 2021 Q3 2021
2/16/2022 28CONCLUSION The MPC decided to decided to maintain the Monetary Policy Rate at 9.0 percent. In arriving at this decision, the Committee took into account the sharp decline in inflation since the November 2021 MPC Meeting and the forecast that shows a continued deceleration in inflation towards the 6-8 percent target range. However, there are upside risks to the inflation outlook that include: increase in crude oil prices; initial effects of implementing the transition to cost reflective electricity tariffs; lower crop production due to adverse weather conditions; lingering supply chain bottlenecks induced by the COVID-19 pandemic; and tightening of monetary policies in major economies in response to rising inflation in their jurisdictions. The Committee also noted and welcomed the Government’s Medium-Term Budget Plan (White Paper). The importance of successful execution of this Plan to the achievement of macroeconomic stability, including low inflation and a stable financial system can hardly be overemphasised. 2/16/2022 29
THANK YOU…
GOD BLESS…
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