GOVERNMENT will continue to monitor the Kwacha’s fall against the US dollar and will use the central bank to take the necessary measures to forestall excesses in exchange rate movements, Finance Minister Alexander Chikwanda has revealed.
Mr Chikwanda said the bank will strike a delicate balance between preventing drastic slippages in the Kwacha parity and preserving the reserves, which he said were not lavish.
Speaking when he issued a ministerial statement on the kwacha exchange rate to Parliament, Mr Chikwanda said on the fiscal side, Government would complement the efforts of the bank by continuing its fiscal consolidation process that would assist in moderating demand conditions for foreign exchange.
“Over the long-term, increased export earnings will never be a matter of fiat,” Mr Chikwanda said.
Mr Chikwanda said there was need to put acts together to increase and quicken activity in sectors such as agriculture, adding that it had relatively shorter and bearable gestation periods.
He said the tourism sector had the potential to contribute, but that it would require reinforcing infrastructure and services in the sector.
“Exchange rates have a relation to the economic status of any country. In Zambia, the participation of our nationals in the economy, except for small-scale agriculture, is uncomfortably low. We import a lot of goods that can be produced locally,” he said. He said the depreciation of the Kwacha was a multi-dimensional issue, adding that it was partly due to the strength of the Unites States dollar against all currencies.
“The American economy has grown at a faster and higher pace than other advanced economies following the 2008 global financial crises,” he said.
He said the kwacha had since end of 2013 depreciated by 24.3 percent against the US dollar while the Euro had depreciated by 20.5 percent, the rand by 11.7 percent and the pound by 7.9 percent.
Mr Chikwanda said US economic strength was largely premised on quantitative easing, a sophisticated way of purchasing existing bond obligations and unleashing huge resources to create new commitments which triggers economic stimulation.
“Sir, on the domestic front, the major reason for the weakening of the kwacha is the palpable demand/supply disequilibrium. In other words, the demand for dollars principally and other currencies exceeds supply,” he said.
Mr Chikwanda said at the beginning of the year, the foreign exchange earnings inflows were slow because of the time lag effects in the realization of export earnings, while lower copper prices had further constrained supply conditions.
“In general, net monthly supply of foreign exchange in 2014 exceeded us$100 million. however, at the beginning of 2015 this fell to around us$85 million,” he said.
Mr Chikwanda said the hard currency earnings would improve as the fiscal year progresses, especially from the mining sector as volumes increase and copper prices continued to trend upwards as had been the case in the last week.