Zambia records highest inflation since December 2021

Zambia has been grappling with high inflation rates, reaching the highest levels since December 2021. Musenge Komeki, the Head of Sales in the Global Markets Division at Stanbic Bank Zambia, provided insight into the current economic situation and the expectations for the future in a recent interview on CNBC Africa. The discussion centered around the inflation story and the monetary policy outlook for the rest of the year. Inflation in Zambia has been steadily rising, reaching 15.7%. However, there is a glimmer of hope as Komeki expressed expectations for inflation to taper off in the coming months. Despite the inflation pressures, he believed that the Monetary Policy Committee (MPC) is unlikely to raise rates in the upcoming meeting. There is optimism that with the rainy season approaching, food inflation, which has been a major contributor to the overall inflation numbers, could start to decline. An important factor affecting inflation has been the outlook for the rainy season in Southern Africa. Initially, there were concerns about the possibility of El Nino conditions, but the forecasts have been changing with expectations of improved rainfall. Komeki highlighted that early rains have been observed, and if the trend continues with significant rainfall in December, there is a possibility of a decrease in food inflation. Nevertheless, the delicate balance lies in ensuring adequate rain without the risk of flooding, which could further damage crops. Zambia has also been facing challenges with power supply due to the drought, leading to extensive load shedding. The International Monetary Fund (IMF) revised its growth forecast for the country to 1.3%, down from the initial estimate of 2.3%. Stanbic Bank Zambia's economists adjusted their projection to 1.2%, attributing the lower forecast to the impact of the drought on the economy. The situation has improved slightly with increased power imports, providing some relief and potential for economic recovery. Despite the economic challenges, Zambia's government has shown fiscal discipline in managing its budget. The administration has focused on social spending to support vulnerable groups while also reducing borrowing through government bonds and treasury bills. This prudent approach has been positively received, with expectations of continued drop in yields on government securities. Moreover, Zambia has made progress in renegotiating its external debt, providing the government with some breathing room to manage its financial obligations. The restructuring of loans has instilled confidence in the country's ability to adhere to its budget plans and service its debts effectively. The successful debt renegotiation has contributed to a sense of stability in government financing and raised hopes for sustained growth in the coming years. In conclusion, while Zambia faces challenges such as high inflation and power shortages, there are signs of improvement on the horizon. The upcoming rainy season brings optimism for easing food inflation, and the government's fiscal discipline and debt restructuring efforts are laying the foundation for economic stability and growth.