Transcript Document

Bank of Zambia
THIRD QUARTER 2009 MEDIA BRIEFING
BY
CALEB M. FUNDANGA
Governor
BANK OF ZAMBIA
Presented at the Bank of Zambia
10th November, 2009
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Bank of Zambia
INTRODUCTION

This brief reviews monetary policy outcomes;

Other economic and financial sector developments in Q3
2009, and

In conclusion, we provide an inflation outlook for Q4
2009.
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1.0
MONETARY POLICY
Bank of Zambia
• In Q3 2009, monetary policy focus:
• Macroeconomic stability and achieving revised end-year inflation
target of 12% (revised from 10%).
 By containing growth of liquidity in banking system within projected
path.
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2.0
INFLATION
Bank of Zambia
•
Annual inflation declined to 13.0% in September (June 2009, 14.4%)
then further to 12.3% in October mainly due to:
 Fall in food prices (mealie meal, white plain flour, Mpulungu
dried kapenta, and vegetables).
 Decline in air fares for the Lusaka/London route and rates for
accommodation for bed & continental breakfast due to relative
strengthening of Kwacha.
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2.0
INFLATION
Bank of Zambia
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3.0
MONEY SUPPLY & DOMESTIC CREDIT
Bank of Zambia
•
Money supply growth slowed down further to 19.8% (20.6%, end-June
2009) due to fall in the (NDA).
•
Annual growth in total domestic credit slowed down to 41.7% (43.3%,
end-June 2009).
•
Personal loans continued to account for highest share at 21.0%
(25.9%, second quarter 2009) followed by agriculture at 16.3% (16.2%,
second quarter 2009)
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4.0
INTEREST RATES
Bank of Zambia
Yield Rates On Government Securities
•
Weighted average yield rates on Treasury bills declined to 17.5% in September
2009 (18.8% in June 2009).
•
However, the weighted average yield rate on bonds rose to 19.1% (18.9% in
June 2009).
Commercial Banks Interest Rates
 Average lending rate rose to 29.7% (June 2009, 28.9%)
 Average savings rate for amounts above K100,000 remained unchanged at
4.7%.
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5.0 FOREIGN EXCHANGE MARKET
Bank of Zambia
•
Kwacha appreciated against major currencies mainly due to:
 Increased foreign exchange inflows, stemming mainly from continued
higher copper prices;
 Positive sentiments in the economy; and
•
Kwacha appreciated by 7.7% gain against the US dollar, the largest rate of
appreciation since the beginning of the year.
•
BoZ participated in the forex market, with lower net sales of US $8.0
million in the third quarter (net sales of US $48.0 million in second
quarter).
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Bank of Zambia
FOREIGN EXCHANGE MARKET (cont)
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6.0
•
•
REAL SECTOR
During the third quarter, positive growth was recorded in the following
sectors:

Mining, as reflected in increased copper and cobalt production by
3.9% and 65.1% respectively.

Manufacturing, supported by increased output of cement, clear
beer, soft drinks, and milk by 30.4%, 11%, 15.4% and 14.9%,
respectively.

Tourism, as international arrivals at the country’s four international
airports increased to 102,918 passengers from 88,066 passengers in
the second quarter of 2009.
In addition, total investment pledges stood at US $622.8 million
compared to US $567.2 million in the second quarter. When fully
executed, these pledges are expected to generate 5,594 jobs.
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6.0

REAL SECTOR
Projections by CSO indicate GDP growth forecast at 6.3% for 2009,
primarily driven by increased output in the mining, construction and
agricultural sectors as follows:

Mining is projected to grow by 21.4%;

Construction by 15.5%; and

Agriculture by 7.1% (Maize output rose by 26.7% to 1.9 million mt
from 1.5 million mt in 2008).
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7.0 BALANCE OF PAYMENTS (BoP)
Bank of Zambia
•
Overall BoP position improved to a surplus of US $645.5 million in
third quarter (surplus of US $24.9 million in second quarter).
•
This was due to the improvement in both the current (export
earnings rose by 45.7%) and, the capital and financial accounts.
•
The capital and financial account surplus had a large increase to US
$532.0 million from US $129.7 million recorded the previous
quarter.
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7.0
BALANCE OF PAYMENTS (BoP)
•
The increase in the capital and financial account was mainly attributed
to a receipt of an SDR allocation of US $627.3 million from the IMF and
an increase in capital transfers to US $65.0 million compared to US $41.4
million in the previous quarter.
•
The improvement in the current and the capital and financial accounts
resulted in an increase in international reserves (IR) to US $1,788.9
million in September 2009 from US $1,171.17 million in June 2009.
•
As a result, IR are expected to rise to about 5 months of import cover by
the end of 2009. This level of reserves has not been attained in the last
38 years.
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7.0 BALANCE OF PAYMENTS (BoP)
Bank of Zambia
Table 2 :Trade Data in US $ millions (f.o.b), Q3 2008-Q3 2009
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3 (Est.)
Trade Bal
Exports
Metals
Copper
Cobalt
Non-Metals
-183.9
-68.6
18.3
78.6
415.0
1,206.7
910.0
684.6
873.2
1,272.2
925.6
712.0
543.5
675.1
1,003.5
856.2
666.7
531.0
656.8
968.2
69.4
45.3
12.6
18.3
35.3
281.1
198.1
141.0
198.1
268.7
-1,416.3
-999.0
-681.5
-820.4
-881.6
Imports
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8.0 IMPLEMENTATION OF THE
ECONOMIC PROGRAMME
Bank of Zambia
• An IMF mission visited Zambia between 31st August and 4th September
2009:
 The mission participated in the preparation of the MTEF and agreed
the 2010 Budget principles with the Zambian authorities;


The Framework emphasised on spending on priority capital projects
and social sectors while remaining consistent with macroeconomic
stability; and

Continued efforts in revenue collection was key to ensuring
feasibility of the 2010 budget.
All end-June benchmarks and end- September 2009 indicative targets
were observed.
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9.0 DEVELOPMENTS IN FINANCIAL SECTOR
Bank of Zambia
•
Overall financial condition and performance of banking sector was
satisfactory in the third quarter 2009.
 Banks were adequately capitalised and sector’s liquidity remained
satisfactory.
 However, the asset quality and earnings performance continued to
deteriorate even though the non-performing loans were adequately
provided for.
• Overall financial performance and condition of the NBFIs was rated fair.
 Leasing and finance companies, MFIs and bureaux de change had
adequate regulatory capital, fair asset quality and liquidity position
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Bank of Zambia
10.0 DEVELOPMENTS IN BANKING, CURRENCY AND
PAYMENT SYSTEMS
•
The BOZ has continued to designate Payment System Businesses with a
total of twenty three (23) licenses issued.
•
The number of Point of Sale terminals on the market increased by 8% to
833 terminals while the number of ATMs increased by 7% to 406
machines in Q4 from 382 machines in Q2

•
Members of the public who travel out of the country are encouraged to
use Visa debit cards for payment of bills or drawing cash from ATMs,
which are now widely available in many countries.
The Bank encourages members of the public to take advantage of these
payment methods as they are more convenient and safer than cash.
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Bank of Zambia
10.0 DEVELOPMENTS IN BANKING, CURRENCY AND
PAYMENT SYSTEMS
•
The total volume of cheques returned unpaid on account of
insufficiently funded accounts decreased by 8% while the value
decreased by 28%.
•
We wish to reiterate that bouncing a cheque is a criminal offence under
the National Payment System Act.
•
Members of public should ensure that they have sufficiently funded
accounts whenever they issue cheques to avoid facing criminal charges.
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Bank of Zambia
10.0 DEVELOPMENTS IN BANKING CURRENCY AND
PAYMENT SYSTEMS

The BOZ continues to implement its “Clean Note Policy”.

Members of the public are encouraged to surrender unfit notes in
exchange for fit ones.

The Bank is further appealing to the public to continue handling
currency carefully as printing of new bank notes is costly.
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11. NATIONAL BUDGET -2010
Bank of Zambia
• The Minister of Finance and National Planning Announced the 2010
National Budget on October 9, 2009.
• Govt maintained thrust of 2009 budget of diversifying the economy,
reducing the cost of doing business and harnessing full capacity of land
and people.
• 2010 Macroeconomic objectives are to:



exceed 5% GDP growth;
reduce end-year inflation to 8.0% ;and
limit domestic borrowing to 2.0% of GDP.
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12.0 INFLATION OUTLOOK FOR FOURTH
QUARTER 2009
Bank of Zambia

Inflationary pressures may emanate from:




However, inflationary pressures would be moderated by:




Price increases on manufactured goods in response to the upward
adjustments in electricity tariffs in the month of August 2009; and
Seasonal increase in prices of beef and beef products.
Further, the broader risk to the achievement of the end-year inflation
target is the likely increase in the domestic fuel pump prices.
Expected stability in prices of mealie-meal and fresh vegetables,
resulting from increased supply on the market; and
Relative stability in the exchange rate of the Kwacha against major
foreign currencies.
BoZ will continue to undertake appropriate monetary policy actions
to contain inflationary pressures.
End-year projection of 12.0% is well within reach and inflation may
well trend down further towards the original 10.0% target.
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