caleb m fundanga : recent economic developments in zambia speech by dr caleb m fundanga, governor of the bank of zambia, on the occasion of the monthly meeting with chief executive officers of commercial banks, bank of zambia, lusaka, 2 april 2004. * 1. * * recent economic developments introduction this brief reviews monetary, economic and financial sector developments during february 2004. monetary developments • during february 2004 monetary policy was focused on reducing monthly overall inflation rate to 1. 6 %. net strong revenue inflows complemented with primary auctions of government securities helped to maintain an appropriate level of liquidity. inflation • monthly overall inflation slowed down by 1. 5 percentage points to 1. 1 % in february 2004 from 2. 6 % in january. this was 0. 5 percentage points lower than the projection of 1. 6 % for february 2004. the decrease in the monthly overall inflation rate was attributed to the slow down in food and non - food inflation rates to 0. 9 % and 1. 4 % in the month under review from 2. 3 % and 2. 9 % in january 2004, respectively. • the slow down in food inflation was attributed to continued ample supply of food items in the market while the drop in non - food inflation was largely due to price declines in rental and fuel prices as well as in prices of transport and communications, recreational and educational services. • the annual overall inflation rate fell to 16. 8 % in february 2004 from 17. 4 % in january 2004. this was 0. 2 percentage points below the end - february 2004 inflation projection of 17. 0 %. the annual overall inflation at 16. 8 % was also 6. 1 percentage points below the end - february 2003 inflation outturn of 22. 9 %. broad money • preliminary data indicate that broad money ( m3 ) 1 growth slowed down to 1. 4 % ( 8. 4 % in december 2003 ) to k4, 530. 7 billion in january 2004 from k4, 467. 9 billion in december 2003. this growth was 1. 0 percentage points lower than the 2. 4 % recorded during the corresponding period in 2003, but was 0. 4 percentage points above the programmed money supply growth of 1. 0 % for the month. • the growth in broad money during the period under review was largely on account of the increase in net foreign assets of the banking system, which increased by 2. 9 % to k2, 364. 9 billion. • year - on -

would remain within the projected ceiling and thereby contribute to the anticipated drop in inflation. in view of these expectations, the bank of zambia will continue to implement appropriate monetary policy aimed at containing the growth in reserve money and broad money within the projections. as part of the outlook, there are two important events that will be forthcoming. these are : the upcoming imf mission • we wish to inform you that the imf mission will be in the country during mid - april to assess progress made against the staff monitored programme ( smp ) with a view to consider zambia ’ s return to a prgf. it is therefore, our hope that nothing will be done in the market to reverse the many successes that we have achieved thus far because we all need the programme which will not only lead to the country reaching the much anticipated completion point under the enhanced hipc initiative, but also bring along other benefits, such as, increased supply of foreign exchange in the economy. the country assistance strategy ( cas ) • in addition, a country assistance strategy ( cas ) for zambia was recently approved by the world bank board. here too a lot of praise was given to our achievements but with caution as more work needs to be done in our economic programme. the approval of cas for zambia means that some substantial funding will be released beginning soon and will spread over a relatively stretched period. this will help ease the situation given the resource constraints that the country is facing, especially to fund capital and related projects.