BoZ Projects Inflation of 21.9% in 2021

Annual inflation accelerated to a five-year high in the first three months of 2021, with prices for many staples continuing to rise. In the Bank of Zambia (BoZ)’s latest communication it has confirmed that inflation is likely to far exceed the Bank’s target rate for inflation of between 6 and 8% for some time to come.  

According to the most recent BoZ figures inflation stood at 22.7% in April, a slight decrease on 22.8% in March. The Bank projects that inflation will average 21.9% in 2021 but is more optimistic about improvement in 2022 when it expects inflation of around 16.7%. It has identified elevated fiscal deficits, higher crude oil prices and rising inflation in major trading partner countries as key challenges. While increased copper prices are a reason for optimism there remain several questions marks around the governance of the sector and whether attempts by the PF government to shake things up could hit production volumes at a critical time. 

Depreciation of the Kwacha has also contributed to inflation, with Bloomberg reporting that Zambia has the second-worst performing African currency in the past year. 

During the briefing Central Bank Governor Christopher Mvunga said that Zambia is close to reaching a deal with the International Monetary Fund (IMF) for an economic reform programme to help alleviate its debt burden, despite recent news that the latest round of talks had failed to secure a deal.  

Talks around a deal have been ongoing for more than five years, with the government rejecting an initial proposal in 2015, before returning to the negotiating table.  

The major stumbling block is concerns around Zambia’s debt sustainability, with the IMF warning in 2018 that discussions could only progress once the government implemented credible measures to manage the country’s growing debt burden. 

Since then, Zambia’s debt has ballooned under the PF government, topping out at over $20 billion this year. In 2020 Zambia was one of the few African countries not to receive financial relief for the coronavirus pandemic because of its unstable debt situation, as well as a poor relationship with the PF regime.