Bank of Zambia Governor Dr Denny Kalyalya has said inflation rate is projected to remain high in the first quarter of 2020 to the fourth quarter of 2021 due to reduced economic activity and persisting liquidity challenges.
Speaking when he addressed the media at Bank of Zambia offices today, Dr Kalyalya said the underlying projection is an effect of the on-going electricity supply challenges and increased external debt service payments on inflation through the expectations and exchange rate channels.
Dr Kalyalya said much of the inflation has been driven by rising food prices and increase in fuel prices.
The upside risks to the inflation outlook include further increases in the prices of maize grain and related products, the increases in electricity and slower progress on fiscal consolidation.Dr Kalyalya said.
He further said that inflation could decline faster in the upper bound of the target range than currently projected on account of the anticipated improvement in agricultural output due to the favourable rainfall pattern observed in the 2019/2020 crop season.
In December last year, overall inflation stood at 11.7 percent and further rose to 12.5 percent in January 2020.
Dr Kalyalya also reviewed that in 2020, the medium- term, real Gross Domestic Product (GDP) is projected to recover at a weaker pace due to the recovery in agriculture, electricity and mining sectors.
Indicators of economic activity suggest a further slowdown in growth in the fourth quarter owing to the contraction in mining output, electricity generation, cement production , consumer spending and manufacturing of selected products.He said.
He attributed the downside risks of the projected recovery to the elevated domestic and debt service, continued accumulation of arrears, slow fiscal adjustment and weaker global economic growth associated with lagged effects of trade disputes and the COVID-19 outbreak.
The governor also reiterated the need for effective and sustained implementation of fiscal adjustment and structural measures to address elevated debt levels and debt service, accumulation of domestic arrears and liquidity constraints in order to restore macroeconomic stability as well as sustained economic growth.