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Zambia scales back projects to reduce debt exposure, central bank says

LUSAKA (Reuters) - Zambia has scaled back, postponed or cancelled projects to reduce the southern African copper producer’s debt exposure as it holds talks to secure a programme from the International Monetary Fund, the central bank governor said on Wednesday.

Zambia, which became Africa’s first pandemic-era sovereign default late last year, began discussions with the IMF last week and has requested debt relief under a new common framework from the Group of 20 major economies.

“Our understanding is that actions are being taken to scale down and reduce the debt exposure of the country, if not stop it for now,” Bank of Zambia Governor Christopher Mvunga told journalists, adding that discussions with the IMF had been “cordial”.

“If I look at the disclosure of the debt portfolio, it’s not moving upwards other than probably existing disbursements. So my reading of that is that the matter is being addressed,” he said following a meeting of the monetary policy committee.

The bank raised lending rates by 50 basis points to 8.5% on Wednesday, saying it was ready to tighten policy further to tame rising consumer inflation driven by “cost-push” pressures and a sharp depreciation in the currency.

Mvunga said annual overall inflation accelerated to a four-year high of 17.6% in the fourth quarter of 2020 from 15.7% the quarter before. Inflation is projected to deviate further from the 6% to 8% target range over the next eight quarters, he said.

The partial easing of COVID-19 restrictions, meanwhile, saw a softer deterioration of private-sector business in the second half of 2020.

“Indicators of domestic economic activity point to a less severe contraction, but weak recovery is projected in the medium-term,” Mvunga said.

Gross international reserves declined by $117.7 million in the fourth quarter to $1.2 billion, or the equivalent of 2.4 months of import cover, caused mainly by foreign exchange interventions and debt service.

The Bank of Zambia said in December it would begin buying gold from Canadian miner First Quantum Minerals and the state mining firm as it resumed holding the precious metal as part of its foreign reserves.

Mvunga said the bank had purchased 47 kilogrammes of gold from state mining investment firm ZCCM-IH's ZCCM.LZ Zambia Gold Company and aimed to buy 21,000 ounces in 2021.

It will also buy 25,200 ounces of London Good Delivery Gold this year from First Quantum’s Kansanshi mine, which produces gold as a by-product of its copper production.

Writing by Joe Bavier and Mfuneko Toyana; editing by Alison Williams, Kim Coghill, Larry King

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