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FUEL, ELECTRICITY INCREMENT NECESSARY – KALYALYA

By BUUMBA CHIMBULU 

THE Bank of Zambia (BoZ) has indicated that increase in fuel pump prices and electricity tariffs are necessary to restore fiscal sustainability, as it adjusts the cost of money upwards to nine percent.

The central bank has therefore warned that non- reforming of the energy and agriculture sectors will continue putting pressure on the treasury, thereby elevating the inflation rate.

“The reforms we are talking about are extremely important,” says BoZ Governor, Denny Kalyalya.

Dr Kalyalya however mentioned that this posed risks to the inflation outlook.

He said this yesterday in Lusaka when announcing the policy rate for the fourth quarter of this year.

“The upside risks to inflation outlook include the possible increase in fuel pump prices and electricity tariffs necessary to restore fiscal sustainability, as well as the predicted fourth wave of Covid-19 which could disrupt supply chains and trigger price increases,” Dr Kalayalya said.

He stressed that reforming the energy and agriculture sectors, importation of fuel and heavily funding the Farmers Input Support Programme (FISP) had put extreme pressure on the treasury.

Dr Kalyalya said the fiscal deficit was expected to narrow to 10.4 percent of Gross Domestic Product (GDP) in 2021 from an outturn of 14.2 percent in 2020.

“This is mainly due to strong revenue collections from the mining sector and a dividend payment from the Bank of Zambia.

“A further decline in deficit to 6.7 percent of GDP is expected in 2022, largely underpinned by significant reduction in spending on subsidies and capital projects,” Dr Kalyalya said.

On the cost of money, Dr Kalayalya, explained that the central bank decided to raise the monetary policy rate to nine percent from the previous 8.5 percent in an effort to steer inflation to single digits in 2022.

He said the move was also meant to achieve the six to eight percent target range for inflation by mid 2023.

 “The decision to raise the policy rate was to begin to steer inflation towards a single inflation digit by 2022. We felt it is necessary to begin this process now and avoid hefty changes in the near future,” Dr Kalayalya said.

The Zambia Statistical Agency will today announce the inflation rate for November from the current 21.1 percent announced last month.

Dr Kalyalya also indicated that the effective implementation of the anticipated fiscal reforms will significantly complement the achievement of a low and stable inflation objective.

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