THE Bank of Zambia says it’s not a joke that Zambia’s economy, which was already weak, is now weakened further with the outbreak of the COVID-19 pandemic.
Bank of Zambia governor Dr Denny Kalyalya says the country’s economy this year is likely to decline by 2.6 per cent, and that Zambia has had no negative economic growth over the past 20 years.
He was speaking when he announced the Monetary Policy Rate (MPR) at Mulungushi International Conference Centre in Lusaka on Wednesday afternoon.
Dr Kalyalya was flanked by his deputies – administration and operations, Rekha Mhango and Dr Francis Chipimo, respectively, the Central Bank’s director for bank supervision Gladys Mposha and director-economics Dr Jonathan Chipili.
The governor announced that the Monetary Policy Committee (MPC), at its meeting, decided to lower the policy rate by 225 basis points, thereby bringing down the MPR to 9.25 per cent – up from 11.50 per cent as announced in February this year.
“We came up with that rate (9.25 per cent) for a number of very important reasons…COVID-19 has brought a major shock to the way we live. Lives are being lost, economies have been brought to a standstill,” Dr Kalyalya said. “The ramifications of the COVID-19 on the global economy, as well as Zambia’s, are far outreaching. So, we took that as our first consideration. Arising from the same (COVID-19 pandemic), we see that economic activity has deteriorated quite considerably. There are some flickers of hope here and there but on the whole, the story is one of worsening economic activity here in our country and other countries as well.”
Dr Kalyalya said what was happening economically at the global stage, had ramifications to Zambia’s economy.
“We are inter-linked [and] one of the ways we are inter-linked is through trade. One of our major export commodities is consumed by people outside this country, notably China. [But] the Chinese economy is projected actually to decline to 1.26 per cent from the usual six plus per cent that we have come to know,” Dr Kalyalya noted.
“Now for an economy of its (China’s) magnitude to decline that much, it means that the purchasing power that was there is also reduced. So, through our export of commodities, we are affected as well.”
He said the Bank of Zambia, every quarter, carries out some surveys on the domestic economy.
“What we have observed is that economic conditions have worsened in the first quarter of this year,” he indicated, stressing that business conditions in the private sector have deteriorated, because new orders have sharply declined, on account of falling consumer spending.
“This is a very serious issue that demand is falling; people are not having sufficient purchasing power to buy the goods that they need. That obviously hurts business. So, this confirms that the situation on the ground is worse than what it was a quarter ago. When we add this COVID-19 pandemic, in our case, we see that we already had a very challenging situation.”
Dr Kalyalya highlighted that before the coronavirus stalled economic activities, the macro-economic environment in Zambia was already unfavourable.
He said all one could anticipate now was a worsened economic situation.
“Indeed, projections so far indicate that our economy is projected to decline to 2.6 per cent in 2020. Last year we recorded a growth of 1.9 per cent. Importantly, we have not had negative growth. Yes, we have had low growth over the past 20 years but we have not had a decline in growth. We last had this 20 years ago – about 1999. The mines were down, in the shops there were marked shortages,” Dr Kalyalya said.
“So, this is what we are saying that this is not a joke. It’s a very serious development that the economy, which was already weak, is weakened further with the outbreak of this pandemic.”
He noted that the COVID-19 pandemic had more devastating effects in some sectors than others.
He asserted that one of the sectors which was hard-hit was tourism.
“You can imagine [that] flights are not coming in, hotels are empty. Until last week, even restaurants could not operate – unless you could do take away. That affects not just the tourist operators but the whole tourist eco-system is heavily affected,” Dr Kalyalya explained, further naming wholesale and retail trade, construction, manufacturing and mining and electricity, as the other sectors which are overwhelmed by the impact of the COVID-19.
“There are many others which are affected but we cite these as those who are recording worse outcomes, so far.”
He said the COVID-19 pandemic was quite serious for it is unprecedented in a number of ways.
“You’ll note that when COVID-19 broke out, firstly we didn’t even know what this was…We have heard about pandemics – we have read about them. But this one what we see different is that the global economy is integrated…” he said.
Dr Kalyalya explained that since some countries have been on lockdown during this period, many people were not moving freely, “meaning they cannot also do their economic activities as they normally do.”
“So, what we see is that the global economy itself, we have already been informed, declined…In fact, it has gone into recession, recording a projected minus three per cent. That is a deep challenge because last year the global economy recorded a growth of 2.9 per cent,” he noted.
Dr Kalyalya explained that if the global economy declined to minus three per cent, “that’s quite a big movement from a plus to the negative.”
He said the MPC believes that any projected global economic growth was based on certain assumptions.
“If those assumptions do not hold, obviously that projected outcome is not going to be realised. What we have observed is that there are still some uncertainties to some of those assumptions that underlay those projections,” said Dr Kalyalya.
“Some of the economies were doing well before the onset of the pandemic – meaning that their structures were quite strong.”
The next MPR announcement would be on August 19 this year.