Transcript BANK Of ZAMBIA

BANK Of ZAMBIA
FIRST QUARTER 2008 MEDIA BRIEFING
BY
DR. CALEB M. FUNDANGA
GOVERNOR
Bank of Zambia
28 APRIL 2008
1.0 Introduction
Media brief:
 Reviews
monetary policy outcomes; and
 other economic and financial sector
developments in quarter 1, 2008; and
 Gives inflation outlook quarter 2, 2008.
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2.0 NATIONAL BUDGET FOR
2008
 The Minister of MoFNP presented the 2008 National







Budget to Parliament on 26 January 2008.
Major Macroeconomic targets for 2008
Real GDP growth at least 7%; and
End year inflation of 7%.
A new fiscal regime for the Mining Sector was
announced
Corporate tax increased to 30% from 25%
Mineral royalty on base metals at 3% (up from 0.6%)
A windfall tax to be triggered at different price levels
3.0 Monetary Policy
 In quarter 1 of 2008, monetary policy
focus:
consolidating macroeconomic stability
i.e. maintaining single digit inflation
(8.9%, December 2007).
 By containing the growth of liquidity in
banking system within the projected
path.

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3.1 Inflation
3.1.1 Overall Inflation
 Annual overall inflation rate
 Single digit 9.8%, end-March 2008
(8.9%, December 2007).
 Increase
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in food inflation (see Chart 1).
5
-1
Dec 05
Jan 06
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec 06
Jan 07
Feb 07
Mar 07
Apr 07
May 07
June 07
July 07
Aug 07
Sept 07
Oct 07
Nov 07
Dec 07
Jan 08
Feb 08
Mar 08
(%)
Chart 1: Annual Inflation - December 2005 to March 2008
23
21
19
17
15
13
11
9
7
5
3
1
Overall
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Food
Non-food
6
3.1.2 Food Inflation
 Annual food inflation

9.1%, March 2008 (5.9%, December 2007)
 Higher
prices of mealie-meal, maize grain,
other cereals, cereal products, groundnuts,
fresh fruits, chicken, fish (bream), beef, milk,
eggs, oils and fats.
 Higher production costs (electricity load
shedding, rising transportation costs, lower
seasonal supply, fishing ban & continued
ban on movement of cattle from Southern
Province- CBPP).
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3.1.3 Non-Food Inflation
 Annual non-food inflation lower,
 10.4%,
March
2008
(11.9%,
December 2007).
 Relative
stability exchange rate
Kwacha vs major trading currencies.
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of
8
4.0 Money Supply and Domestic Credit
4.1 Money Supply
 Annual money supply (M3) growth,
 27.7%,
March
2008
(26.3%,
December 2007) (see Chart 2).
 Rise
in Net Foreign Assets (NFA) by
56.5%.
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Chart 2: Annual Broad Money Growth, December 2005 - March 2008
50
45
40
35
25
20
15
10
5
Actual
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Projection
10
Mar
Feb
Jan 08
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan 07
Dec 06
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan 06
0
Dec 05
(%)
30
4.2 Domestic Credit
 Domestic credit growth slowed down,
 7.1%, March 2008 (19.7%, December
2007).
 Fall
in net claims on government by 36.9%,
despite a 28.2% expansion in private sector
credit.
 Excluding foreign currency denominated credit, which
decreased by 3.6%, domestic credit rose by 10.7%.
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4.2 Domestic Credit Cont...
 Sector analysis
 Credit
dominated by:
Personal loans at 21.3%;
 Agriculture 18.5%;
 Financial services 13.7%; and
 Manufacturing 10.7% (see Table
1).

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Table 1: Share in Total Loans and Advances (%),
Dec 06 – Feb 08
Dec 06
Dec 07
Jan
08
Feb
08
27.2
21.0
19.8
18.5
4.3
4.0
4.5
4.7
13.3
10.7
10.9
10.7
Electricity, gas, water & energy
3.2
4.9
3.7
3.4
Construction
2.2
3.5
3.6
3.7
14.5
10.8
10.9
10.3
Restaurants & hotels
2.0
1.2
1.1
1.0
Transport storage and communicat.
8.0
7.2
7.4
6.9
Financial services
4.7
4.2
10.1
13.7
Community, social and pers.services
2.5
1.6
1.7
1.5
Real Estate
4.8
2.2
2.2
2.1
11.2
15.7
21.5
21.3
Sector
Agriculture
Mining & Quarrying
Manufacturing
Wholesale and retail trade
Personal Loans
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5.0 Interest Rates
5.1 Yields on Government Securities
 Yield rates on Treasury bills declined

Weighted average Treasury bill rate 12.7%, end-March
2008 (12.9%, end-December 2007) (see Chart 3).

Increased demand for Government securities.
 Bond rates increased

Weighted average bond rate 15.9%, March 2008 (15.6%,
December 2007)

Continued foreign investor interest, especially in longer
dated securities (see Chart 4).
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7/18/2015
91-day
182-day
273-day
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Jan-07
Dec-06
Nov-06
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Chart 3: Treasury bill Yield Rates % p.a
19.0
17.0
15.0
13.0
11.0
9.0
7.0
5.0
364-day
15
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5.2 Commercial Banks Interest Rate
 Lending rates continued to trend downwards

Average lending rate 24.3%, March 2008 (24.4%,
December 2007).
 Deposit rates increased


30-day deposit rate for over K20 million 5.0%,
March 2008 (4.8%, December 2007)
Average savings rate for over K100, 000 remained
unchanged at 4.8%.
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Lending
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Avg Savings
Mar
Feb
Jan 08
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan 07
30
27
24
21
18
15
12
9
6
3
0
Dec 06
(%)
Chart 5 : Commercial Banks Interest Rates
Deposit Rate (30 days)
18
6.0 Foreign Exchange Rate
 Kwacha appreciated against major foreign
currencies.
 By 4.2% to K3,675.36 against the US dollar; and
 By 4.9% to K475.56 against the SAR.
 Stronger supply of foreign exchange on the market, due to high
copper prices in international markets;
 Increased foreign investor participation in Government
securities market due to reduction in interest rates in USA; and
 General weakening of the US dollar in global markets due to
on-going credit crisis.

Kwacha depreciated by 1.8% to K5,629.90 against Euro (see
Chart 6).
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7.0 Balance of Payments
 Overall BoP surplus of US $164.8
million in quarter 1 of 2008 (US
$60.6 million surplus, Quarter 4 of
2007).
Improvements in capital and financial
accounts due to increase in financial
inflows in form of capital transfers and
other investments.
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7.0 Balance of Payments Cont…
 Trade surplus of US $288.3 million ( US $115.7 million
surplus, 4th quarter 2007)

Increase in copper (3.2%) and cobalt earnings (36.9%).

Copper export earnings at US $886.0 million (US $858.4
million, 4th quarter 2007)
Higher realised LME prices at US $7,746.94 per ton (US
$6,949.22 per ton, 4th quarter).



Cobalt export earnings at US $108.3 million (US $79.1
million, 4th quarter,
Increase in realised price to US $42.37 per pound from US
$28.76 per pound (see Charts 7 & 8).
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Chart 7: Export Earnings (US $ Millions)
1000
900
800
Copper
700
600
500
400
300
200
100
0
Q1.2005Q2.2005Q3.2005Q4.2005Q1.2006Q2.2006Q3.2006Q4.2006Q1.2007Q2.2007Q3.2007Q4.2007Q1.2008
Copper
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Cobalt
NTE's
23
7.0 Balance of Payments Cont…
 NTEs 16.1% decline to US $183.6 million in Q1 2008


Lower export earnings of copper wire, white spoon sugar,
burley tobacco, cotton lint, electric cables, fresh flowers and
gemstones (see Table 2).
However, NTEs were 5.6% higher compared to Q1 2007.
 Merchandise imports 8.8% decline to US $901.1
million in Q1 2008

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Lower import bills of iron & steel products, petroleum
products, fertiliser, industrial boilers & equipment and
electrical machinery & equipment.
24
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Dec-05
Jan-06
Feb
Mar
Apri
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Jan-07
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan-08
Feb
Mar
US cents per pound
Chart 8: Movement in the LME Copper Price
450.5
350.5
250.5
150.5
50.5
25
Table 2: Non-Traditional Exports (US $ Million)
2004
2005
2006
2007
Q4.2007
Q1.2008
Copper wire
58.5
106.5
175.0
186.7
46.2
26.8
Sugar
33.4
67.8
54.3
62.9
24.5
12.5
Burley Tobacco
43.3
60.3
70.5
51.6
15.6
2.2
Cotton Lint
51.4
55.9
62.3
34.1
8.2
5.8
Electric cables
32.7
48.5
103.7
132.9
46.1
10.9
Flowers
25.5
32.1
34.7
28.2
12.6
4.2
Cotton Yarn
23.9
24.1
18.9
12.4
2.1
4.5
Fresh Fruit Vegetables
23.2
21.3
25.3
23.2
3.9
4.0
Gemstone
16.2
19.5
18.1
29.6
4.8
2.7
Gasoil/Petroleum Oils
24.3
9.8
10.3
21.6
4.1
1.6
4.8
3.8
7.0
6.0
2.8
2.7
Electricity
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8.0 Copper and Cobalt Output
 Copper output 8.9% decline to 128,592.7 mt in Q1 2008
(see Chart 9).

Flooding of mines, typical in rain season.

But output higher than 114,912.7 mt recorded in Q1 2007.
 Cobalt output 8.2% decline to 1,150.2 mt.
 But, 26.9% higher than 906.5 mt produced in Q1 2007.
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9.0 Implementation of the
Economic Programme
 IMF Mission visit to Zambia in Q1
2008.
 Article
IV consultations; and
 Discussions
on
new
economic
programme. PRGF arrangement ended
September 2007.
 Understanding reached on new threeyear economic programme under
PRGF.
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10.0 Developments in Banking
Sector
 Overall
financial
condition
and
performance of banking sector in Q1
2008- satisfactory.
Maintained
adequate capital & reserves; and
Asset quality, earnings and liquiditysatisfactory.
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11.0 Developments in Non-Bank
Financial Sector
 Overall financial condition and performance
of NBFIs in review period- satisfactory.
 Leasing
companies, MFIs and bureaux de changeadequate regulatory capital.
 One
leasing company and one building society
recorded regulatory capital deficiencies.
 However, measures have been put in place to
address the deficiencies.
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12.0 Banking, Currency and Payment Systems
 Currency in circulation, 7.0% decrease
to K1,408.4 billion (K1,514.9 billion,
end-December 2007).

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Lower demand for cash in Q1. Q4
demand for cash usually higher due to
festive season
32
12.1 Removal of unfit paper and
polymer banknotes from circulation

Unfit banknotes removed amounted to 20.3
million pieces (21.5 million pieces, Q4 of 2007).

Public exchange of mutilated banknotes
amounted to 11,984 pieces (9,779 pieces, Q4
2007).
 Notes burnt by fire or eaten by rats.
 The public is encouraged to deposit excess
cash with commercial banks.
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12.2 Implementation of Item Value
Limits
 Item
Value Limits implementation has
reduced dependency on cheques and
DDACC in transfer of funds and payments for
large value and urgent transactions.
 However, some customers have in some
cases split the amount and drawn more than
one cheque to the same beneficiary.
 The Public encouraged to utilise RTGS for
transmission of large value transactions.
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12.3 Implementation of Tax Payment
Stream
 Implementation of Tax payment stream has
enabled tax payers to make payments
through commercial banks on any day before
the deadline.


Queues at ZRA offices greatly reduced.
Some corporate tax payers with appropriate
infrastructure can issue tax payment
instructions from their offices.
 Public to embrace this payment stream for all
their tax payment obligations.
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13.0 Inflation Outlook for the
Second Quarter of 2008
 Overall annual inflation to slow down
in Q2 2008.
 Easing
of both food and non-food
inflationary pressures.

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Lower food prices
 Improved seasonal supply.
36
13.0
Inflation Outlook for the
Second Quarter of 2008 (cont.)

Lower non-food inflation


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pass-through
effects
of
appreciation of Kwacha against
major currencies; and
Reduction in VAT to 16.0%
effective 1 April 2008 (from 17.5%).
37
14.0 Conclusion
 The Bank of Zambia will continue to monitor
these developments and undertake appropriate
monetary policy actions.
 Thank You
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