favourable in 2010 due to the rebound of copper prices on the international market as well as the expected increase in copper production as some mines increase production to full capacity and the resumption of production at some mines. the rebound in the international price of copper in the second half of 2009 and the return of foreign portfolio flows resulted in an appreciation of the exchange rate of the kwacha by 4 % at the end of the year. however, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. despite this, government remained within the programmed domestic financing for the year. december - 2009 inflation revised to 12. 0 % in the budget speech for 2010 presented to parliament on october 9, 2009. distinguished members, the financial sector has remained resilient despite the effects of the recent global financial crisis. currently, the zambian financial sector is characterized by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. as a result, the demand for the relatively risk free government securities has increased causing a decline in yield rates on government securities. the decline in government securities yield rates and relatively low inflation experienced since the beginning of the year should contribute to a decline in banks lending rates and thus stimulate borrowing by the private sector. i am aware that the high interest rates in the country pose a very big challenge for our manufacturers to borrow for recapitalisation and expansion of their businesses. access to finance is essential for the economy to grow and therefore it is necessary that we find ways that could reduce the cost of borrowing to allow key sectors to expand. ladies and gentlemen, i wish to reiterate that the economic fundamentals point to a reduction in lending rates. in a liberalised financial market environment, the central bank contributes to the reduction in lending rates by reducing inflation. the government also contributes by implementing prudent fiscal policy, thus limiting the incidence of crowding out of the private sector by the government. as a result, yield rates on government securities fall. as inflation and yield rates on government securities decline, lending rates are also expected to decline in the medium to long term as the two provide the relevant opportunity cost of lending to the private sector. another factor that commercial banks take into consideration in determining lending rates is the default risk arising from the poor credit culture in the economy in general. in resolving the problem of poor credit culture, the central bank through the financial sector development

, where the majority of the poor live. with deteriorating fiscal positions in the donor government, there also remains a real risk of cuts in donor flows to the mdgs are to : eradicate extreme poverty and hunger ; achieve universal primary education ; promote gender equality and empower women ; reduce child mortality ; improve maternal health ; combat hiv / aids, malaria and other diseases ; ensure environmental sustainability ; and develop a global partnership for development. developing countries. in zambia for example, government revenues during the first half of 2009 were 25 % below the projections in the 2009 budget, largely reflecting lower trade taxes as well as lower donor inflows. for africa, as a whole, recent estimates by the imf are that budget deficits will drop from a surplus of 2. 8 % of gdp in 2008 to a deficit of 5. 4 % of gdp in 2009 – with fiscal outturns deteriorating across both oil and non - oil commodity exporters. the global financial and economic crisis has also impacted foreign direct investment ( fdi ) and credit flows in africa, with serious consequences on the ability of african economies to build their productive capacities. for many countries in ssa, fdi flows as well as commercial lines of credit have been an important source of finance for growth, particularly because of insufficient domestic savings and the shallowness of domestic capital markets. in zambia, for example, over the past 5 years fdi flows have averaged over us $ 900 million per annum, particularly in the mining, agriculture, manufacturing, construction, and tourism sectors. i believe this is an important part of the reason why zambia ’ s real gdp growth in 2009 is estimated at 4. 5 %, well above the 1. 5 % forecast for ssa. as indicated earlier, fdi flows to africa are projected to fall by 18 % in 2009, relative to 2008 inflows of us $ 30 million. in addition trade credits have been impaired as has the access of government ’ s to the international capital markets. efforts, for example, by several african countries to raise longterm financing in international markets through sovereign bond issues have either failed, been cancelled ( for example the ghana telecom bond issue for us $ 300 million ) or have been delayed ( for example the eurobond issues for kenya, nigeria, tanzania, and uganda ). my fourth point is related to the actual, as well as imagined, failures of the market mechanism at the heart of the advanced economies, and the inevitable institutional reforms that need to be undertaken