Finance Minister Situmbeko Musokotwane will present Zambia’s 2027 National Budget on October 30, against ambitious targets for economic growth, copper production, electricity generation and fiscal consolidation. The proposed fiscal deficit of 0.2% of GDP is particularly striking. But the real test is whether the numbers will hold during implementation — and what the Government’s financing strategy means for businesses.The K19.9 billion supplementary budget proposed for 2026 illustrates the challenge. Agriculture accounts for K15.8 billion, including K14.7 billion to pay farmers who supplied maize to the Food Reserve Agency (FRA). The FRA purchased 2.7 million tonnes against an original target of 500,000 tonnes. Other allocations include K540 million for university tuition and allowances, K422.5 million for Defence and K300 million for contingencies.The financing plan relies on K18 billion in additional domestic borrowing, supplemented by K1.3 billion in additional revenue collections and K510.8 million in donor funding, alongside smaller savings and unspent balances.The maize purchases may be justified by food-security concerns. The fiscal question is whether such expenditure pressures are adequately anticipated in the original budget. When spending significantly exceeds initial estimates, Government must find additional revenue, cut other expenditure or borrow more. A supplementary budget can be necessary, but repeated adjustments make the credibility of the original fiscal targets harder to assess.The bigger question is what domestic borrowing means for the private sector.Government borrowing competes with businesses for financial resources. Banks and institutional investors compare lending to private firms with investing in Treasury bills and Government bonds. When government securities offer attractive returns relative to the risks and costs of commercial lending, financial institutions have an incentive to allocate more funds to them.This is the crowding-out risk: businesses may face higher borrowing costs or reduced access to credit because Government absorbs a larger share of available domestic financing.The effect is not automatic. Domestic borrowing can also mobilise savings, support economic activity and finance necessary public expenditure. Its impact depends on market liquidity, investor demand, the maturity structure of government debt and the availability of alternative funding. But the risk deserves attention when private investment is expected to drive faster economic growth.A lower policy rate does not guarantee cheaper business loans.The Bank of Zambia’s policy rate influences monetary conditions, but commercial lending rates also reflect banks’ funding costs, credit risks, inflation expectations and returns available on alternative investments.If the policy rate declines while Government continues borrowing heavily, attractive Treasury bill and bond yields could limit the reduction in commercial lending rates. Banks may still prefer government securities to loans for businesses perceived as riskier, particularly small and medium-sized enterprises.The result could be a widening gap between monetary easing and the financing conditions businesses actually experience. A lower policy rate would offer limited relief to an SME if its working-capital loan remains expensive or its application is rejected.This matters for investment in machinery, inventories, construction and expansion. Zambia cannot sustainably pursue growth of 6–7% while productive businesses struggle to access affordable finance.The scale of refinancing also matters. Government’s 2026 Annual Borrowing Plan projected K106 billion in gross domestic borrowing, including substantial refinancing of maturing debt. Gross borrowing should not be confused with new deficit financing: much of it replaces existing obligations. Nevertheless, refinancing requires Government to return to the domestic market, while debt-service payments continue to place pressure on public resources.Zambia is therefore managing two related challenges: financing current expenditure and refinancing past borrowing. The 2027 Budget needs to show how both can be managed without undermining private investment.The Government’s Grow Zambia Agenda provides the economic rationale for getting this balance right. Higher copper production should create opportunities for local suppliers and exporters. More electricity should support mines, manufacturers and agricultural businesses. Higher agricultural output should strengthen rural incomes and food security.The test is whether public expenditure expands productive capacity and generates future economic returns, rather than simply increasing spending.For the 2027 Budget, three questions deserve particular attention: Are the revenue and expenditure assumptions realistic? How much domestic financing will Government require, including refinancing? And will its borrowing strategy leave sufficient capital available for businesses?The projected 0.2% deficit is an important headline, but the private sector will judge the Budget partly by what happens to credit availability, lending rates and investment.The central trade-off is clear: Government must finance its obligations while creating room for businesses to finance growth. Fiscal consolidation and private-sector investment can reinforce each other, but only if the financing strategy supports both.On October 30, the important question will not simply be how much Government plans to spend. It will be whether the Budget can deliver fiscal discipline without making productive investment harder to finance.

Zambia’s 2027 Budget: The real test is whether the numbers hold

Deep beneath the city stood a machine that had been running for as long as anyone could remember.They called it The Immortal Engine.Nobody knew exactly when it had been built. Some said it was designed by economists. Others said engineers had merely inherited it from generations before them.But everyone knew one thing:The engine could never stop.Inside it lived millions of people.Some worked in the food chambers. Others operated transport systems, factories, banks and shops. There were farmers, traders, teachers, miners and mechanics.Every morning, the engine moved.And every morning, the engineers watched its gauges.One gauge mattered more than almost any other.It was called INFLATION.Inflation did not tell them whether the engine was moving.The engine was always moving.Instead, it told them how quickly the cost of living inside the engine was changing.When inflation was rising rapidly, the engineers knew something was happening inside the machine.Perhaps it was overheating.Perhaps fuel was becoming expensive.Perhaps too much pressure was building in one part of the system.Or perhaps several problems were happening at once.The engineers therefore had different departments.And, importantly, they did not all control the same parts of the machine. <h2>The Department of Monetary Controls</h2>On the eastern side of the engine was a large control room.Above the door was written:BANK OF ZAMBIA — MONETARY CONTROLInside sat the monetary engineers.Their most important instrument was a giant lever called the POLICY RATE.The lever controlled the cost of borrowing across the engine.When the engineers raised the lever, borrowing generally became more expensive.The idea was simple:If people and businesses were borrowing and spending too aggressively, raising the rate could help slow demand.It was like pressing the engine's brake.But brakes were not meant to be pressed forever.If the engine was already slowing too much, keeping the brake down could create another problem.Factories could slow.Businesses could postpone investment.Consumers could reduce spending.Economic activity could weaken.So the monetary engineers constantly asked:Is the engine moving too fast, or are we already slowing it too much? <h2>The Energy Department</h2>On the western side of the machine was another control room.This one belonged to the Energy Regulation Engineers.They controlled something very different.They did not control the brake.They controlled the fuel system.Fuel was the energy that kept the engine moving.But fuel had a cost.When the price of fuel increased, almost everything connected to the engine could feel it.Trucks needed fuel.Buses needed fuel.Farmers needed fuel.Factories needed fuel.Generators needed fuel.And when transportation became more expensive, the cost could eventually find its way into the price of food and other goods.The engineers knew this.But they also had another problem.If the engine needed fuel, someone had to pay the cost of producing and supplying that fuel.So the Energy Department had to adjust the fuel gauge when the underlying cost of fuel changed. <h2>Then came September 30</h2>One morning, two messages arrived at the central command room.The first came from the Monetary Control Department."Reduce the policy rate."The engineers had decided that the monetary brake could be eased.The engine did not need as much braking pressure as before.Some observers outside the engine immediately became confused."Why are they stepping off the brake?"But the monetary engineers had their own gauges.Inflation had been declining.The economic environment had changed.And they were trying to balance the need to contain inflation with the need to avoid unnecessarily restricting economic activity.So they released some pressure from the brake. Then another message arrived.This one came from the Energy Department."Increase the price of fuel."Now everyone was confused.One department was easing the brake.Another was making fuel more expensive.Was the engine malfunctioning?Not necessarily.The two engineers were controlling different parts of the machine.The Monetary Department was concerned with the speed and pressure of demand.The Energy Department was dealing with the cost of the energy required to keep the machine running.And this is where understanding inflation becomes important. <h1>The Engine Cannot Stop</h1>Imagine you are sitting inside the Immortal Engine.The machine is moving.If it moves too quickly, things start to go wrong.The engine becomes hot.Workers become uncomfortable.Components wear out faster.The engineers may need to apply the brakes.In an economy, one way this can show up is through rapidly rising prices.That is one reason central banks can raise interest rates.But imagine the opposite.The engine is moving too slowly.Factories are producing less.Businesses are investing less.People are spending less.Workers are losing income.The engineers may decide that keeping the brake pressed is no longer appropriate.So they ease it.That is broadly what a policy-rate cut is trying to do.But now imagine that, at exactly the same time, the fuel itself becomes more expensive.The engine still has to run.The trucks still have to move.The food still has to be transported.The generators still have to operate.So even though the monetary engineers have eased the brake, the higher fuel cost can push up costs elsewhere in the machine. <h1>Cooling and Heating</h1>The most important lesson inside the Immortal Engine was this:The economy can be moving while inflation is falling.People sometimes imagine that falling inflation means prices are falling.They aren't necessarily.If inflation falls from 10% to 6%, prices are generally still rising.They are simply rising more slowly.Think of the engine's temperature.Suppose yesterday the engine was heating at a rate of 10 degrees per hour.Today it is heating at 6 degrees per hour.The engine is still getting hotter.It is just getting hotter more slowly.That is similar to what happens when the inflation rate falls while prices continue to increase.The engineers therefore have to watch both the temperature and the rate at which the temperature is changing. <h2>But Fuel Can Change the Temperature</h2>The fuel department creates another complication.If fuel becomes more expensive, transportation and production costs can rise.A farmer may pay more to move fertiliser.A trucker may pay more to transport maize.A bus operator may face higher operating costs.A manufacturer may pay more to move raw materials.Eventually, some of these costs can be passed on to consumers.The engine begins generating more heat.The monetary engineers see this on their gauges.But they cannot simply respond to every increase in fuel prices by slamming on the monetary brake.That could create a different problem.If the underlying economy is already slowing, excessive braking could make the engine struggle.So the engineers have to distinguish between demand-driven inflation and cost pressures. <h1>The Great Balancing Act</h1>This is why the Immortal Engine has so many engineers.One person cannot control everything.The monetary engineers control the brake.The energy engineers control the fuel system.Other engineers work on electricity, food production, exchange rates, government spending, taxes, trade and financial stability.All of them are trying to keep the same machine running.And sometimes their actions can appear contradictory.One engineer says:"Ease the brake."Another says:"Fuel is more expensive."Both can be true.Because the economy is not controlled by one lever.It is a machine with thousands of interconnected parts. <h1>And The Engine Keeps Moving</h1>Inside the Immortal Engine, the people eventually learned something important.Their goal was not to stop the machine.Stopping it would be disastrous.The goal was to keep it moving at a pace that could be sustained.Not too fast.Not too slow.Not too hot.Not too cold.The engineers would constantly adjust the controls.Sometimes they would apply the brake.Sometimes they would release it.Sometimes they would have to pay more for fuel.Sometimes fuel costs would fall.And sometimes an adjustment in one department would create consequences somewhere else.The machine would never be perfectly still.Because an economy that is functioning is always moving.The real challenge is keeping that movement sustainable.And somewhere deep inside the Immortal Engine, another gauge began to flash.INFLATION: 6.1%The engineers looked at it.The engine was still moving.But for the moment, it was not moving as violently as before.Then another alarm appeared:FUEL COST: RISINGThe engineers looked at each other.They knew their work was far from finished.Because the Immortal Engine never sleeps.And neither do its engineers.

The Immortal Engine

The Bank of Zambia has cut its key policy rate by 250 basis points to 10.75%, delivering its fourth consecutive rate cut as inflation continues to ease.The decision came on Wednesday, September 30, against the backdrop of a sustained disinflationary trend that has been underway since early 2025.And this was a move we were watching closely at Katondo Street Journal.In yesterday’s analysis, “What Will the Bank of Zambia Do With the Policy Rate?”, we examined the case for another cut, pointing to falling inflation and the changing monetary policy environment.<a href="https://www.katondostreet.com/article/what-will-the-bank-of-zambia-do-with-the-policy-rate?utm_source=chatgpt.com" rel="noopener noreferrer" target="_blank">Read yesterday’s KSJ analysis: What Will the Bank of Zambia Do With the Policy Rate?</a><h3>Inflation gave the Bank room to move</h3>Annual inflation eased to 6.1% in September, down from 6.2% in August. That is the lowest annual inflation rate since February 2018 and places inflation close to the lower end of the Bank of Zambia’s 6–8% target range.The decline in inflation has been supported by several factors, including the suspension of fuel taxes, zero-rating of value-added tax and a relatively resilient Kwacha.The result is a very different inflation environment from the one Zambia faced when monetary policy was considerably tighter.<h3>What does a 10.75% policy rate mean?</h3>The policy rate is not the interest rate consumers see directly on their loans. Instead, it is one of the key signals used by the central bank to influence financial conditions across the economy.A lower policy rate can eventually translate into lower borrowing costs if commercial banks adjust their lending rates.For businesses, that could mean cheaper financing for working capital and investment. For households, it could affect the cost of new borrowing and, depending on the type of loan, existing variable-rate credit.But the transmission will not necessarily be immediate. Banks also consider their own funding costs, liquidity and credit risks when setting lending rates.<h3>The bigger question now</h3>With inflation at 6.1%, the focus shifts from whether inflation is falling to how the Bank manages monetary policy with inflation now near the bottom of its target range.The latest cut therefore marks another step in Zambia's transition from an environment of high inflation and tight monetary conditions towards one where policymakers have greater room to support economic activity.For businesses and consumers, the question now is whether the reduction in the policy rate will begin to show up more clearly in the cost of credit.For KSJ, Wednesday's decision also provides a useful reminder: watching the inflation data can tell us a lot about where monetary policy may be heading.

Bank of Zambia Cuts Policy Rate to 10.75% — As KSJ Predicted

The numbers point in several directions ahead of Wednesday’s policy rate announcement.The Bank of Zambia is due to announce its latest monetary policy decision on 30 September 2026, with the policy rate currently at 13.25%.Ahead of the announcement, Nsembe Technologies’ policy-rate analytics model points to a relatively narrow range around the current rate — but with some room for a cut.The model’s latest estimates, based on data through August, put the implied policy rate between 13.16% and 13.78%. Its blended signal is 13.47%, just 0.22 percentage points above the current rate.That means the data does not point to a large move in either direction.<h3>Inflation is giving the BoZ some room</h3>Annual inflation fell to 6.2% in August, down from 6.5% in July and below the midpoint of the Bank of Zambia’s 6–8% target band.That is important for monetary policy.With inflation currently within the target range, there is less immediate pressure from prices for the central bank to raise interest rates. At the same time, the Bank still has to consider the exchange rate, fiscal conditions and external risks before deciding whether there is enough room to ease.The kwacha was trading around K18.90 per US dollar in the August dataset, with relatively limited recent movement.<h3>But interest rates remain high in real terms</h3>The current 13.25% policy rate is substantially above August inflation.On a simple policy-rate-minus-inflation measure, that produces a real policy rate of about 7.05%.That suggests monetary conditions remain restrictive, particularly when compared with an assumed neutral real rate of around 2%.Average commercial-bank lending rates were still 27.29% in August, although they edged down from the previous month.For businesses and households, therefore, the question is not simply whether inflation is falling. It is also whether borrowing conditions remain tighter than necessary for an economy where inflation is now within the target band.<h3>What does the model say?</h3>The Nsembe policy-rate model combines a Taylor Rule framework with machine-learning estimates.Its latest signals are: <ul><li>Taylor Rule: 13.78%</li><li>Ridge Regression, three-month outlook: 13.16%</li><li>Six-month model projection: 13.04%</li><li>Blended signal: 13.47%</li></ul>A separate classification model assigns probabilities of 41% to a cut, 30% to a hold and 29% to a hike over the next three months.These figures should not be read as the Bank of Zambia's own probabilities. They are outputs from an independent model using historical macroeconomic relationships.<h3>So what should we watch for?</h3>The key question for Wednesday is whether the Bank considers the decline in inflation and relatively contained exchange-rate pressure sufficient to justify easing, or whether it prefers to keep the policy rate unchanged while watching the broader macroeconomic picture.The model itself does not point to a dramatic adjustment. Its estimates cluster close to the current 13.25% rate.That makes the size — and direction — of any move more important than the headline debate about whether rates are simply "high" or "low".For borrowers, a cut could eventually reduce the cost of credit. For savers and holders of fixed-income instruments, however, lower policy rates can reduce returns on some interest-bearing assets.The Bank will ultimately weigh these competing effects alongside inflation, exchange-rate stability, financial conditions, fiscal developments and external risks.For now, the data suggests a policy rate that is close to where the models think it should be — with a modest easing signal emerging as inflation moves further inside the target range.Model estimates by Nsembe Technologies, using 161 monthly observations from January 2013 to August 2026. The analysis is an independent analytical model and does not represent the Bank of Zambia's forecast or policy position.

What Will the Bank of Zambia Do With the Policy Rate?

A decision made by a central bank thousands of kilometres away can eventually show up in the price of imports, the value of a currency and the cost of borrowing in Zambia.Interest rates are usually presented as domestic policy decisions.The US Federal Reserve changes its policy rate to influence the American economy. The European Central Bank does the same for the euro area. But in an increasingly interconnected financial system, these decisions rarely remain within their own borders.For emerging markets, changes in global interest rates can have very real consequences.<h3>It starts with investors</h3>International investors are constantly comparing returns.When interest rates in advanced economies rise, government bonds and other assets in those markets can become more attractive relative to riskier emerging-market investments.Some investors may therefore reduce their exposure to emerging markets and move funds into assets perceived as safer or offering better risk-adjusted returns.The reverse can happen when global rates decline.Lower returns in advanced economies can push investors to search for yield in emerging and frontier markets.These movements can influence the availability and cost of foreign capital.<h3>The currency channel</h3>One of the most visible effects can appear in foreign-exchange markets.If international investors reduce their holdings of local assets, demand for the local currency can weaken. Depreciation can follow.For an economy that imports fuel, machinery, medicines, food or industrial inputs, this matters.A weaker currency means that the same dollar-priced import costs more in local currency.That can feed into domestic inflation.Central banks may then face a difficult balancing act. Cutting interest rates could support economic activity, but doing so while the currency and inflation are under pressure may create additional risks.<h3>Governments feel it too</h3>The impact does not stop with private investors.Emerging-market governments often rely on domestic and international borrowing to finance public expenditure and investment.When global interest rates rise, international borrowing can become more expensive. Investors may also demand higher yields to compensate for the increased opportunity cost and perceived risk of holding emerging-market debt.Foreign-currency debt creates another vulnerability.If the local currency depreciates against the dollar, the domestic-currency cost of servicing dollar-denominated debt increases even if the amount owed in dollars has not changed.This can place additional pressure on government budgets.<h3>Why Zambia is exposed</h3>Zambia provides a useful illustration of these transmission channels.The country is integrated into global markets through trade, investment and external financing. Copper exports generate foreign exchange, while the economy also depends on imported fuel, machinery and other goods.Global financial conditions therefore matter.A change in the attractiveness of US or European assets can influence international investor appetite for emerging and frontier markets. Changes in commodity prices can simultaneously affect Zambia's export earnings and foreign-exchange position.The result is that the impact of a global interest-rate shift is not necessarily straightforward.A period of higher global rates may create pressure through financing costs and capital flows, while strong copper prices could provide an offset through higher export receipts.Domestic policy and economic fundamentals matter as well.<h3>Not every emerging market experiences the same shock</h3>The phrase "emerging markets" can sometimes make very different economies sound identical.They are not.A country with substantial foreign-exchange reserves, strong export earnings and relatively manageable external debt may respond differently to a global rate increase than a country with large external financing needs and weak reserves.The structure of the economy matters too.Commodity exporters, for example, may benefit from rising prices for their major exports even as tighter global financial conditions create pressure elsewhere.This is why global interest rates should be understood as one part of a larger transmission mechanism rather than a single cause of economic outcomes.<h3>From Washington to Lusaka</h3>The important point is that monetary policy has become increasingly global in its consequences.A rate decision in Washington can influence international capital flows.Capital flows can affect exchange rates.Exchange-rate movements can influence import prices and inflation.Global borrowing costs can affect government financing.And these pressures can eventually feed into decisions made by businesses, households and policymakers in countries far from the original decision.The chain is not always immediate, and it does not operate in exactly the same way everywhere.But it helps explain why emerging-market economies pay close attention to decisions made by the world's major central banks.For countries such as Zambia, understanding this connection is increasingly important.The price of money is globalising, even when economic policy remains largely national.

How Shifts in Global Interest Rates Reach Emerging Markets. Placeholder summary for the World section. Replace this text with a real story or delete the article from the admin dashboard.

How Shifts in Global Interest Rates Reach Emerging Markets

<h2>Reading the policy signals</h2>Analysts combining classical Taylor Rule frameworks with machine-learning forecasting models are converging on a cautious, data-dependent stance. <h2>The bigger picture</h2>A stable, well-communicated rate path tends to matter more for investment decisions than the rate level itself.

Taylor Rule and machine learning models point to a cautious Bank of Zambia policy stance.

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Zambia’s 2027 Budget: The real test is whether the numbers hold

The Immortal Engine

Bank of Zambia Cuts Policy Rate to 10.75% — As KSJ Predicted

What Will the Bank of Zambia Do With the Policy Rate?

How Shifts in Global Interest Rates Reach Emerging Markets

Bank of Zambia Policy Rate Outlook: What the Models Say