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UPDATE 1-Zambia's central bank holds key interest rate at 9.0%

·2 min read

(Adds GDP, fiscal deficit, quotes)

LUSAKA, May 18 (Reuters) - Zambia's central bank on Wednesday left its main lending rate unchanged at 9% as inflation slowed, Governor Denny Kalyalya told a news conference.

However, Kalyalya said a projected grain deficit in some neighbouring countries coupled with reduced domestic surplus posed risks to inflation as it was likely to push prices up.

Inflation is projected to average 12.5% in 2022 and then ease to 8.9% in 2023, he said. It was running at 11.5% in April versus 13.1% in March.

Kalyalya said International Monetary Fund support was key to resolution of external debt after the southern African country became the first pandemic-era sovereign default in 2020, struggling with debt that has reached 120% of GDP.

Its debt was $31.74 billion at the end of 2021, according to official government data -- of which $17.27 billion is external.

Zambia's official creditor committee mainly comprising members of the G20 had been formed but discussions on the restructuring of the nation's debt had not yet started, Kalyalya said.

Real GDP is projected to grow moderately at 3.5% in 2022 before increasing by a further 3.6% in 2023 and 3.9% in 2024, respectively, he said.

"The financial and insurance, information and communication, wholesale and retail trade, education, as well as mining sectors are expected to drive growth over this period," Kalyalya said.

For 2022, the fiscal deficit as a percentage of GDP is projected to narrow to 6.7% from a preliminary outturn of 9.0% in 2021, he said.

"Enhanced revenue mobilisation measures and rationalisation of the expenditure, reinforced by the debt restructuring under the G20 Common Framework, underpin this projection," he added. (Reporting by Chris Mfula; Editing by Emelia Sithole-Matarise)