Given the above favourable economic outlook, it is anticipated that the annual rate of inflation would be in the single digit region by the end of 2006, mainly, due to the current momentum in policy implementation and developments in the real sector. This in turn will provide an environment for further stability in the exchange rate and lowering of lending interest rates. In the financial sector, enormous progress has been made towards the development and deepening of the financial markets in Zambia. Additionally, significant achievements have been made in areas, such as monetary policy formulation and implementation, broadening of the money markets, foreign  4  BIS Review 5/2005  exchange policy management and establishment of the capital market. Improvements have also been made in the formulation of prudential and regulatory regulations to enhance financial system stability and development. However, the development of a more active secondary financial market to enhance efficiency in the financial system remains a key challenge for all stakeholders in the financial services industry. To address this challenge therefore, the Government approved the Financial Sector Development Plan (FSDP), which, after implementation, will enhance financial intermediation and efficiency of the financial sector. Ladies and Gentlemen As I conclude, I wish to reiterate that during the past 40 years, several achievements have been made in macroeconomic management in Zambia, but more could have been done had it not been for the reasons I alluded to earlier.

and other international financial creditors. This explains, in part, the huge external debt the country is overburdened with today. (ii)  By 1964, most of Zambia’s neighbours, such as Mozambique, Zimbabwe, Namibia, and Angola, were at the height of their liberation struggles and Zambia had no option but to offer refuge and logistical support to the liberation movements like, FRELIMO, ZANU, ZAPU, SWAPO, UNITA, and MPLA. This meant that Zambia had to sacrifice some of its scarce developmental resources for the sake of assisting these liberation movements to gain their independence, and in some instances, Zambia had to borrow to finance this expenditure. (iii)  As a result of the liberation wars in the neighbouring countries, Zambia had to arm herself, militarily, against possible foreign aggression by procuring weapons and other military hardware from friendly countries such as Russia, China, etc. This again explains why Zambia today has a huge debt with Russia. Military expenditure was unavoidable as the colonial regimes used to attack Zambia directly. In this regard, one can mention the bombing of Lusaka as well as the destruction of Luangwa bridge. Ladies and Gentlemen I have endeavoured to include these seemingly simple but critical factors so that we understand the historical context of some of the policies implemented during the last 40 years and their impact on national development. Therefore, to contain the deteriorating macroeconomic situation, the Government introduced a myriad of economic policies including price controls because the economic shocks were considered transitory and, thus, the Government would easily balance its budget.