Fiscal discipline key to macro-economic stability
Published On September 2, 2021 » 1953 Views» By Times Reporter » Opinion
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SINCE the recent Kwacha appreciation has not managed to drastically push down the prices of essential commodities, the Bank of Zambia (BoZ) Monetary Policy Committee (MPC) has done well to maintain the Policy Rate at 8.5 per cent.
This allows for the control of either interest rate on short term borrowing or money supply to keep the economy humming.
It is also good to note the favourable outlook for the foreign exchange rate and a projected drop in the rate of inflation.
We note that in arriving at this decision, the MPC remained conscious of the subdued economic activity and existing vulnerabilities in the financial system.
Going forward, the efficient implementation of fiscal adjustments premised on fiscal discipline, the dismantling of domestic arrears, enhancement of revenue collection, achieving a sustainable budget balance, securing an International Monetary Fund (IMF) programme, and external debt restructuring will be critical in restoring macro-economic stability.
During a Press briefing yesterday, BoZ governor Christopher Mvunga observes that the global economy continues to register gains in the second quarter of 2021 as economies gradually reopened following relative success in vaccinations against COVID-19 in most advanced countries.
The growth is projected at six per cent in 2021 and moderate to 4.9 per cent in 2022.
This is despite the emergence of more contagious Coronavirus (COVID-19) variants, coupled with the slower pace of vaccinations, particularly in most emerging markets and developing economies, as well as geopolitical tensions.
Sustained expansionary fiscal policies, particularly in the United States and recovery in global trade are some of the major drivers of global growth.
We want to agree with the MPC that with the exception of seasonal agricultural related activities, the rest of the monitored indicators in the BoZ Survey of Business Opinions and Expectations were below the first quarter level.
The depreciation of the Kwacha as well as the seasonal low supply of some vegetables and fish continued to be the key drivers of inflation.
We further note the central banks position that THE overnight lending rate remained broadly unchanged at 8.50 per cent and within the Policy Rate Corridor of 7.5 to 9.5 per cent throughout the quarter.
BoZ also states that demand for Government securities strengthens demand for Government bids surged with the subscription rate rising to 162.2 per cent from 66.2 per cent in the first quarter.
This was mostly on the back of high-yield rates and improved investor sentiments following the credit rating upgrade by Fitch in April 2021.
These developments, particularly attracted non-resident investors who accounted for about 70 per cent of total demand for bonds.
Therefore, the maintenance of the Policy Rate at 8.9 per cent stands justified in the face of trade optimism raised by the existing fiscal and inflationary adjustments.

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