UPDATE 3-Zambia scales back projects to reduce debt exposure, central bank says

* Debt portfolio “not moving upwards”

* Government in talks with IMF, seeking to restructure debt

* Central bank raises lending rates to tame rising inflation (Adds analyst comment)

LUSAKA, Feb 17 (Reuters) - Zambia has scaled back, postponed or cancelled projects to reduce its debt exposure, the central bank governor said on Wednesday, amid talks to secure an emergency lending programme from the International Monetary Fund.

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

Bank of Zambia Governor Christopher Mvunga told journalists following a meeting of the monetary policy committee that discussions with the IMF had so far 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.

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.

Markets had been looking to the rate decision as a gauge of how talks with the IMF might be progressing, said Razia Khan, chief Africa economist at Standard Chartered.

“A 50 bps rate hike will not, on its own, make a significant difference,” she said. “Nonetheless, the stated willingness of the BoZ to consider further tightening may be taken as a positive signal.”

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 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