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External factors to worsen Zambia's bid to accumulate foreign reserves

Xinhua, February 14, 2015 Adjust font size:

Zambia's Central Bank said on Friday that the continued worsening eternal environment poses a challenge to its ability to accumulate foreign reserves required to mitigate foreign exchange volatility.

The Bank of Zambia, in its latest economic analysis, said the deterioration in the external sector experienced in 2014 has continued in 2015 and that this poses a major challenge to the stability of the foreign exchange market.

"The projected slowdown in China, the major consumer of commodities, including copper, will impact negatively on the country's external performance with particular adverse effects on the exchange rate and consequently inflation," the Central Bank said.

Copper export accounts for about 70 percent of Zambia's foreign exchange earnings.

The Bank however indicated that the external challenges were likely to be mitigated by the downward trend in oil prices.

According to the analysis, Zambia's overall balance of payments deficit deteriorated in the fourth quarter of 2014 and the deterioration in the external sector will continue to have a negative effect on the country's macroeconomic indicators, the Central Bank said on Friday.

The Central Bank said overall balance of payments in the fourth quarter of 2014 widened to 152.9 million U.S. dollars from 125.0 million dollars recorded in the third quarter.

"The widening in the deficit was mainly driven by unfavorable performance in both the current and financial accounts. The current account deficits widened to 213.4 million dollars from 57. 8 million dollars on account of a decline in the trade surplus as well as widening of the services and primary income deficits," the Central Bank said.

According to the analysis, surplus on trade balance declined by 21.0 percent to 342.7 million from 433.7 million recorded in the previous quarter, explained by a decline in merchandise exports.

According to the figures, merchandise export earnings fell 3.7 percent compared to the 4.5 percent increase recorded during the third quarter of 2013. Endi