INCREASING the import cover from three to six months will address the shocks that come with a narrow import cover reserve while reducing interest rates and stabilising the Kwacha, says National Savings and Credit Bank (NATSAVE) managing director Cephas Chabu.
Import cover is the amount of money available in the Bank of Zambia to cover the cost of imports.
Mr Chabu said in an interview that increasing the import cover to six months was a sustainable way to stabilise the local currency and reduce interest rates because the stock of foreign exchange would be more.
“When we increase our reserves from the current stocks of import cover to a longer period of time, we will strengthen our local currency and be able to give ourselves a good value and lower interest rates.
‘‘Six months gives a lot of stability in the economy to address the shocks that come with a narrow import cover reserve.
“That’s a very sustainable way of solving this problem because once we improve our import cover, what it means is that the stock of our foreign exchange will be more and once supply is more, the pricing of the dollar will be lower,” Mr Chabu said.
He also explained that high interest rates in the short term stabilised the exchange rate because many businesses imported goods at a lower rate.
“This means that there is indirect benefit which comes with the higher value in terms of our local currency because you benefit from the interest rates.
“At the end of the day what someone would have spent last year in terms of imports would be less this year, this is the trend we see. Much as the interest rates are going up, people import at a lower price and are able to generate sufficient revenue,” he said.
Mr Chabu, however, said that stabalising the Kwacha and reducing interest rates, in the long term, lay in diversifying the economy.
“In the long term, in order to sustain the exchange rate lies in diversification of the economy. People are able to import more and that means there will be natural increase of supply of foreign exchange in Zambia which will in turn reduce on the exchange rate.
“When that happens, you will find that the interest rates on the other hand will start to drop because the productivity in the country is taking place in sufficient foreign exchange,” he said.