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REPUBLIC OF ZAMBIA
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No. 6618 Lusaka, Friday, 10th November, 2017 [Vol. LIII, No. 76
GAZETTE NOTICE NO. 777 OF 2017 [7807207
The Bank of Zambia Act
(Act No. 43 of 1996)
Monetary Policy Statement
This Monetary Policy Statement provides an outlook for global economic growth, domestic economic growth and inflation, and outlines
monetary policy objectives for the second half of 2017. The Statement also reviews the performance of monetary policy during the first half
of 2017. Selected macroeconomic indicators are presented in the Appendix.
2.0 GLOBAL ECONOMIC OUTLOOK: 2017 - 2018
2.1 ECONOMIC GROWTH
Global growth is projected at 3.5% and 3.6% for 2017 and 2018, respectively (IMF World Economic Outlook (WEO) Update, July
2017). The projections are based on strong growth outlook for emerging market and developing economies (EMDEs), premised on the
recovery in commodity prices and stronger demand in China.
GDP growth in most of Zambia's major trading partner countries1 is projected to rise over the 2017-18 period. In China, a 6.9% growth
in GDP is projected for 2017, reflecting the effects of expansionary fiscal policy, public investment growth, and the recovery in exports as
global demand picks up. Strong demand for copper by China is projected in the near-term based on the growth projection of the electricity
sector. This is expected to strengthen the recovery in copper prices.
In the Democratic Republic of Congo (DRC), GDP growth is projected to rise to 2.8% in 2017, up from 2.4% in 2016. A further rise in
growth to 3.5% is expected in 2018. A recovery in the country's extractive sectors on the back of higher commodity prices and improving
external demand is expected to drive growth. Nevertheless, the outlook is closely linked to domestic political developments, which may
affect inward investment in the economy. GDP growth for South Africa for 2017 and 2018 was revised downward in July from 1.0% and
1.5% to 0.5% and 1.2%, respectively. The downgrade was mainly due to weak consumer and business confidence, elevated political risk, and
uncertainty of the impact of Brexit negotiations on trade and financial flows.
2.2 COMMODITY PRICES
The projected pick-up in global economic growth and strong demand for copper by China are expected to support the recovery in copper
prices, which are projected to average US$5,669.59 and US$5,894.07 per ton in 2017 and 2018, respectively. In addition, modest increases
in agricultural commodity prices, including for Zambia's non-traditional exports (i.e. maize, sugar, wheat and soya beans) are projected,
mainly on account of less favourable weather conditions (concerns about La Niña) in some other countries and rising costs of energy. Further,
lower crude oil prices, averaging US$55.89/barrel and US$57.97/barrel in 2017 and 2018, respectively, are projected mainly on account of
3.0 DOMESTIC ECONOMIC OUTLOOK FOR 2017 – 2018
Over the medium-term, domestic economic growth prospects are expected to improve. The GDP growth forecast for 2017 and 2018 have
been revised upward from 3.9% and 4.6% to 4.3% and 5.1%, respectively. The upward revision reflects mainly increased agricultural
output, recovery in electricity generation as well as higher mining output supported by increased prices and electricity supply2. The
increase in electricity generation is expected to support growth across all sectors. In addition, easing monetary conditions are expected to
lower lending rates and thereby spur domestic credit and ultimately economic growth. The anticipated improvements in external sector
performance premised on higher export earnings will provide a conducive environment for supporting industrialisation and diversification
in line with the Economic Growth and Stabilization Programme – “Zambia Plus” and the 7th National Development Plan.
However, challenges to growth and the financial sector remain. These include high interest rates, low credit growth, high non-performing
loans, and structural weaknesses in the financial sector. In addition, Government containing the budget deficit and overall debt levels, as well
as reducing domestic arrears to planned levels remain critical to consolidating macroeconomic stability.
4.0 INFLATION PROJECTIONS FOR THE SECOND HALF OF 2017
In the second half of 2017, annual overall inflation is projected to remain below the 9.0% target for 2017, at an average of 6.7%. For end-
year, inflation rate is projected at 7.0%, slightly higher than the 6.8% recorded at end-June 2017 (Chart 1 and Table 1 - Appendix).