Caleb M. Fundanga

1
Bank of Zambia
FINANCIAL SECTOR DEVELOPMENT AND POVERTY
REDUCTION Presentation to the Zambia UN Country
Team Annual Retreat

• Caleb M. Fundanga
• Governor - Bank of Zambia
• 23 January, 2009, Siavonga

2
Table of Contents
Bank of Zambia

• Introduction
• Recent Economic Developments
• Financial Sector Developments
• Implications for Poverty Reduction
• Collaboration with United Nations
• Conclusion

3
I. Introduction
Bank of Zambia

• The Zambian economy has performed relatively well
  in recent years.
• Economic reforms have yielded macro-economic
  stability
• Further financial deepening and inflow of capital
  needed to expand productive capacity
• Challenge remains to uplift living standards of
  Zambians

4
II. Recent Economic Developments(Real GDP)
Bank of Zambia

• Real GDP averaged about 5.1 per annum between
  2001-2007.
• Growth driven by mining, tourism, construction,
  transport and agricultural sectors.
• GDP per capita rose from US360.5 in 2001 to
  US934.5 in 2007
• Due to the global financial crisis and subsequent
  recession, GDP growth is projected at 5.8 in
  2008.

5
II. Recent Economic Developments
(Real GDP)
6
II. Recent Economic Developments(Inflation)
Bank of Zambia

• Zambia attained single digit inflation in 2006
  and 2007 after 24 years.
• Appropriate monetary and fiscal policies credited
  for this achievement.
• However, due to external shocks (food, fertiliser
  fuel and financial crisis effects), inflation
  rose to 16.6 in 2008.
• This was the general trend in other countries as
  well.

7
II. Recent Economic Developments(Inflation)
Bank of Zambia

8
Table 1 CPI Inflation for Selected Countries /
Regions, Jan 08 - Dec 08
9
II. Recent Economic Developments(Interest Rates)
Bank of Zambia

• BoZ has taken measures to reduce the high cost of
  borrowing over the years
• Reduction of statutory reserve ratios
• Containing inflation
• In addition, Govt. also adopted prudent fiscal
  policies
• Consequently, Commercial Bank lending rates have
  been declining (54.6 in 2001 to 24.4 in 2007)
• With rising inflation in 2008, Av. Lending rates
  increased to 26.9 at end-December 2008.

10
II. Recent Economic Developments(External
Sector)
Bank of Zambia

• Strong improvement in external sector performance
  exhibited by
• Build-up of GIR to 3.6 months of import cover in
  2007 from 0.9 months in 2001.
• Surplus trade balances reduction in current
  account deficits as of GDP
• Relative stability in Kwacha exchange rate
• Good performance attributed to
• High copper earnings
• Increased NTEs
• HIPC Debt relief
• Increased budget support from donors
• However, overall BoP narrowed in 2008 and a sharp
  depreciation in the exchange rate was observed in
  the second half.

11
II. Recent Economic Developments(External
SectorTable 2 Trade Statistics)
Bank of Zambia

12
II. Recent Economic Developments(External
SectorTable 3 Major Non-Traditional Exports in
US million (CIF), 2007 Q1- 2008 Q3)
13
II. Recent Economic Developments(Fiscal
Performance)
Bank of Zambia

• Govt. budget has continued performing well in
  recent years
• Lower budget deficits
• Reduced Govt. borrowing
• However, unexpected expenditure such as
  presidential by-elections put enormous pressure
  on budget in 2008
• Prudent budget execution results in release of
  domestic resources for poverty alleviation
  programmes

14
III. FINANCIAL SECTOR DEVELOPMENTSOverview
Bank of Zambia

• Since 2002, financial sector has been stable and
  experienced growth
• No bank closures
• Satisfactory performance
• Adequate capital positions, earnings and
  liquidity
• Branch network expansions (223 in 2008 from 173
  in 2004)
• Increased ATM installations (295 in 2008 from 54
  in 2004)
• (see Chart and maps)
• Govt. has restructured or re-capitalised most
  state owned NBFIs
• Micro Finance Iinstitutions increasingly filling
  the financing gap for SMEs (See Maps)

15
Bank Branch Distribution by Province as at 31st
December 2008
Luapula BBZ (1) Cavmont (1) FBZ (1) Zanaco (3)
Northern BBZ (3) Cavmont (2) FBZ (8) Stanchart
(1) Zanaco (3)
Copperbelt Abc (1), BBZ (13) Cavmont (3), Citi
(1) FBZ (6), FAB (2) Indo (3), Intermarket
(1) Investrust (2), Stanbic (5) Stanchart (6),
Zanaco (9)
17
6
North Western BBZ (1) Cavmont (1) FBZ
(3) Investrust (1) Stanbic (1) Stanchart
(1) Zanaco (2)
Eastern BBZ (4) Cavmont (1) FBZ (2) Indo
(1) Investrust (2) Zanaco (5)
10
52
15
15
Central BBZ (4) FBZ (2) Indo (2) Stanbic
(1) Zanaco (6)
6
Western BBZ (1) FBZ (2) Stanchart (1) Zanaco (2)
71
31
Lusaka Access (1), ABC (1), BOC (1) BBZ (15),
Cavmont (4), Citi (1) FBZ (14), FAB (1), Indo
(5), Intermarket (2) Investrust (4), Stanbic
(4) Stanchart (5), Zanaco (13)
Southern BBZ (10) FBZ (6) Indo (1) Stanbic
(1) Stanchart (3) Zanaco (10)
16
ATMs Distribution by Province as at 31st October
2008
17
Microfinance Institutions Branch Distribution by
Province as at 31st December 2008
18
III. FINANCIAL SECTOR DEVELOPMENTS FSDP
Bank of Zambia

• The World Bank/IMF led FSAP of 2002 highlighted
  various weaknesses.
• Consequently, Govt. launched the FSDP in 2004
• FSDP aims at achieving a
• stable, sound and market-based financial system
  that will support the efficient mobilisation and
  allocation of financial resources necessary to
  achieve economic diversification, sustainable
  growth and poverty reduction.

19
III. FINANCIAL SECTOR DEVELOPMENTS FSDP
Bank of Zambia

• Achievements under FSDP
• Attainment of macro-economic stability
• Increase in number of financial institutions
• Sovereign rating sought
• Credit reference bureau established
• Law review and
• Assessment of levels of financial access in
  Zambia (Fin Scope Demand Side and Supply Side
  studies).
• Main challenges in implementation of FSDP have
  been funding constraints and lengthy tendering
  processes.

20
IV. IMPLICATIONS FOR POVERTY REDUCTION
Bank of Zambia

• Zambia aims to attain middle income country
  status by 2030.
• Vision 2030 and FNDP are instruments to attain
  this goal.
• Growth of financial sector is vital in order to
  facilitate increased private and public sector
  investments.
• Hence current Financial Sector policies are aimed
  at enhancing economic development and poverty
  reduction.
• A strong financial system will provide increased
  and affordable access to finance (financial
  inclusion).

21
IV. IMPLICATIONS FOR POVERTY REDUCTION
Bank of Zambia

• Domestic savings needed for increased private
  investment.
• Greater impact on poverty requires higher
  employment.
• BoZ is encouraging banks and MFIs to develop more
  innovative services to suit the needs of the
  informal sector.
• BoZ is encouraged with response particularly of
  commercial banks in reaching out to the
  previously unbanked.

22
V. SUGGESTIONS ON HOW TO WORK WITH UN PROGRAMMES
Bank of Zambia

• There is scope for the BoZ to collaborate with
  the UN in enhancing the contribution of the
  financial sector to poverty reduction.
• Some of the areas of possible cooperation
  include
• Assistance in development of inclusive financial
  system strategies
• Collaboration in financial literacy campaigns
  and
• Access of Zambian micro finance institutions to
  the MicroLead Fund under the United Nations
  Capital Development Fund.

23
VI. CONCLUSION
Bank of Zambia

• Attainment of sustainable development and poverty
  reduction remains a major challenge for Zambia.
• A strong financial system is vital to the
  economic empowerment of the vulnerable in
  society.
• A lot has been achieved so far in the
  development of the financial sector but much more
  remains to be done.

24
END
Bank of Zambia

• For more information on the Zambian economy,
  visit the Bank of Zambia Website on
• www.boz.zm
• THANK YOU