requires that all key stakeholders play their part. the government reduction of domestic borrowing contributes to lowering of yield rates on government securities, which are sometimes used as anchors by commercial banks. the commercial banks should also respond to changing macroeconomic indicators consistent with low interest rates, while borrowers need to improve their credit culture. as for the bank of zambia, we continue monitoring financial conditions and take appropriate actions to contribute to lowering of interest rates. ( iii ) a relatively stable and competitive exchange rate has a positive impact not only on inflation, but also on the performance of the external sector. in this regard, policies for stabilising the exchange rate must aim at increasing the export earning capacity of the country through stimulation and maintenance of strong export sector by, among other things : • developing a diversified and competitive export base ; and • ensuring food self - sufficiency to reduce food imports. in addition, continued implementation of appropriate monetary and fiscal policies, particularly the reduction in the fiscal deficits, is critical to maintaining stability in the exchange rate. ( iv ) external debt should be contracted to finance the productive sector so as to lessen the burden of debt service. otherwise, it will result, as we have seen in the last 40 years, in huge outflows at the expense of expenditures on social and economic infrastructure development, which are pre - requisites to sustainable poverty reduction efforts. ( v ) the need to diversify the economy, including the external sector, cannot be overemphasised. diversification is a sure way of preventing external shocks to the economy and will contribute to maintenance of macroeconomic stability. dependence on one or a few products leaves the economy susceptible to external shocks. ( vi ) in the financial sector, the key lesson is that liberalisation of the industry is not tantamount to relaxing of regulatory and supervisory measures. in fact the legal, regulatory, and supervisory frameworks should be strengthened to deal with any excesses arising from entry of institutions with poor management or governance practices due to the attractive liberal environment. ( vii ) legal and operational framework requires continuous reviews to remain relevant in this technologically fast moving world. ladies and gentlemen after learning the lessons from the past 40 years, the following are some of the challenges we have to confront : • achievement and maintenance of price stability, i. e. low and stable single digit inflation ; • maintenance of a stable and competitive exchange rate ; • diversification of the economy and the export base ; • enhancing economic policy credibility. policy

caleb m fundanga : brief summary of economic and financial developments in zambia speech by dr caleb m fundanga, governor of the bank of zambia, at the official launch of standard chartered bank crossroads branch, lusaka, 25 september 2007. * * * the chairman of standard chartered bank zambia, mr george sokota members of the board of directors of standard chartered bank zambia the managing director of standard chartered bank zambia, mr. tom aaker distinguished guests members of the press and may i simply say ladies and gentlemen i am very pleased to be here today to officially open the new crossroads branch of standard chartered bank zambia. mr. chairman, as i have stated at various fora before, it is important for banks in zambia to take the lead in implementing actions, which contribute to the development of the financial infrastructure and support the development of our economy. as you may be aware, ladies and gentlemen, we would like banks to : • open new branches, such as this one, to enhance convenience for our people to access banking services, thereby improving financial service delivery and empowering our citizens ; • provide loans to the productive sector to support economic activity, such as mr. sokota just described ; and • invest in latest state of the art technology, such as standard chartered ’ s new electronic branch banking platform. i must hasten to mention, however, that in striving to meet these demands, banks must always comply with the regulations as stipulated in the banking & financial services act of 1994 as amended in 2000, to ensure the safety of customers ’ deposits and stability in the financial sector. any activities by banks, which do not meet the minimum standards provided for in the law, will invite close scrutiny and possible sanctions from the bank of zambia to bring the banks in line with the legal framework. mr chairman, following implementation of sound macroeconomic policies, the economy is relatively stable as shown by various indicators : • inflation is under control ; • the kwacha is stable ; and • interest rates are going down, although not yet as low as we would like them to be. the cost of borrowing has remained high in spite of the progress that has been made in the monetary and fiscal management of our economy. this high cost has, in turn, stifled the growth of the productive private sector, in particular the small and medium enterprises ( sme ) sector, which should be the engine of economic growth of our country. i therefore, appeal to all banks operating in zambia to show more commitment to the growth