• The Kwacha is weakening because national reserves are depleting.
• Bank of Zambia is using the resources to try and stabilize the local unit.
• On the international market, Zambia has also lost a lot of positive perceptions due to failure to restructure its debt.
The delay in restructuring Zambia’s debt is putting pressure on the local currency, resulting in high commodity prices, blocking the much-needed international investments.
On Tuesday, International Monetary Fund (IMF) urged Zambia’s official creditors to move forward and reach an agreement on a debt treatment in line with the financing assurances that they provided in July, 2022.
IMF Director of Communication Julie Kozack said Zambia needs a significant reduction in its debt burden from external creditors to contemplate economic reforms and preserve the recent growth momentum.
And a Financial Analyst has advised government to start implementing long term strategies such as driving a high Gross Domestic Product (GDP) growth which will increase the country’s trade balance and strengthen the Kwacha.
Trevor Hambayi told Money FM News in an interview that the Kwacha has continued to weaken because national reserves are depleting as Bank of Zambia is using the resources to try and stabilize the local unit.
Mr. Hambayi noted that on the international market, Zambia has also lost a lot of positive perceptions due to failure to restructure its debt.
“So those two factors are very cardinal in terms of the external factors we need to restructure our debt because this is speaking to confidence that we have in the market and it has limited the inflow of capital from Foreign Direct Investors because the debt has not been restructured.”
“There has been no inflow coming in and then domestically as well obviously in terms of the GDP growth, you find that the mining sector has not performed as well as it should, production has reduced so we are not generating as much hard currency which means that the demand for dollars is more than the supply and this is a cardinal issue. This is not a short term issue, it’s a long term strategy which government must start to implement if we want to get out of this challenge,” Mr. Hambayi stated.
He further noted that the persistent weakening of the local unit has put both government and the Central Bank in a very difficult position.
“It’s a very difficult position that both government and the central bank is in because the measures that they have been using, should have been applied as short term measures while we are implementing our long term strategy and you will realize that the strategy we have been using to try and contain the strength of the Kwacha, we have been using this since 2015.”
“This is where we are trying to apply fiscal measures which include the Monetary Policy Rate, reduction of liquidity, as well as the increase in statutory reserve ratio which is also limiting liquidity in the market. All these should have been short term measures, the long term measures that speak to having to resolve this, is having to drive a high GDP growth which is going to increase our trade balance. Our trade balance should be positive that we are generating more Foreign Exchange than we are importing so that our reserves are increasing,” he noted.
The Kwacha has continued to lose strength against major convertible currencies despite Bank of Zambia applying fiscal measures such as tightening the Monetary Policy Rate and raising the statutory reserve ratio on commercial banks’ deposit liabilities to minimize exchange rate volatility.
Most commercial banks have today quoted the local unit at K21.10 Ngwee and K21.51 Ngwee on the bid and offer, respectively.