The Kwacha trail-spin: Whither to?
Over the last couple weeks, the Zambian Kwacha has experienced an unprecedented depreciation vis-à-vis hard currency.
The depreciation has left the economy in a limbo with no assurance as to when it will end. In response, the Bank of Zambia has initiated a raft of monetary intervention measures with a view to turning the tide in favour of the Kwacha.
So far, well over US $500 million have been poured onto the domestic money market but, as everyone knows, the impact has been disappointing and less than expected.
If anything, the domestic currency has remained in a coma and it is anyone’s guess when it will come to.
It would appear that we are, perhaps, prescribing and administering wrong medication to the patient (the Kwacha).
Offloading millions of US Dollars onto the open money market assumes that the challenge is with respect to the oversupply of the Kwacha vis-à-vis hard currencies.
Following this logic, increased Dollar supply on the market will bullishly rally the local currency against hard currencies and, invariably, strengthen its exchange value.
Unfortunately, this will not happen. The Kwacha is rapidly depreciating and failing to hold against hard currencies not so much because there is too much of it on the market but because we are not producing and exporting enough to earn foreign exchange.
Currently, the bulk of our foreign exchange earnings come from copper exports and, hence, one might easily explain away the rapid depreciation of the Kwacha by simply banding around the depressed demand for the metal in China.
The dynamic is, however, deeper than depressed demand for copper and very much relates to our ability to shoot ourselves in the foot by pursuing monetary restriction policies that end up constraining access to foreign exchange by actual and potential non-copper exporters.
Recently, the Bank of Zambia increased the Monetary Policy Rate (MPR) from 12.5 per cent to 15.5 per cent. The MPR is what the financial credit markets use as a base for calculating rates at which they eventually lend money.
In effect, what this means is that the higher the MPR, the higher the rate at which loanable funds will be accessed by borrowers.
Given the very high import content of most firms that produce and export goods, high interest rates are the surest way of constraining their capacity to produce.
Constrained production and export capacities only help to strengthen the vicious circle where the local currency is weakening against hard currencies because the country is not producing and exporting enough due to limited access to foreign exchange, limited exports results in inadequate foreign exchange availability and, finally, inadequate supply of foreign exchange leads to low exchange value of the Kwacha.
It might be evident from the foregoing, that the challenge is structural rather than monetary and, therefore, what Zambia requires are structural interventions.
This is based on the understanding that the country’s economic challenges are strongly rooted in the structural configuration of its economy which is characterised by one domineering export sector.
Consequently, a lasting and sustainable solution should aim at re-aligning the economy from copper with a view to promoting, energising and bringing on board the sectors that the Government has rightly identified as priority alternative export drivers, i.e. manufacturing, agriculture and tourism.
In order to achieve this, the country needs stimulant and not depressant policies.
Policy and Governance Consultant. email@example.com
Lungu will scoop 2016 elections
There is an old axiom which goes; “Threatened men live longer a trite saying, but like all common things, true”
So for me the Post can write all the innuendos in this world about President Lung’s health, they will come to nought.
Who told them that the President took a break after an exhausting tour of the Copperbelt?
How can a “tired and unwell” President go on a working holiday? The stupid point which the newspaper wants to push on is to portray President Lungu is in bad health.
How can fellow human beings with feelings take pleasure in propagating false illness news of President Lungu just because the Head State has refused to dance to their tune?
Well, like the adage above President Lungu will live longer and come next year he will still be in State House and I know some people will run away from Zambia because of their sins.
If God has anointed President Lungu to rule Zambia no man can stop that. It is as plain as that.
Long live President Lungu, Long live Zambia.