Economist Noel Nkhoma says the kwacha is likely to continue depreciating once the Bank of Zambia leaves the market because the use of foreign reserves to strengthen the currency is not sustainable.
Following frantic intervention by the BoZ to offload more dollars, the kwacha ended last week’s trading at an average K11.90 per dollar, raising false hopes that the local unit is making a comeback.
Nkhoma, who is Betternow Finance Company chief executive officer, said the kwacha is likely to relapse once the BoZ leaves the financial markets after dumping dollars to help strengthen the under-pressure local currency.
“I think throwing foreign reserves to buffer the kwacha is not sustainable, it is a fact! In the short to medium term it is, but for how long because the reserves have dwindled,” he wondered.
Nkoma said the kwacha is likely to depreciate again as demand usually outstrips supply during the festive period.
“…We are going into the Christmas season where there is so much pressure, and you will see that ultimately, the demand will far outstrip the supply side,” he responded Nkhoma also urged the government to desist from making uncoordinated policy pronouncements, which he said were negatively affecting the performance of the kwacha.
“We are seeing a situation where we are continuing to aggressively spend as if everything is normal, and I think statements by government are causing alarm. Because if we have a situation whereby people out there think that the mine can be taken over over-night, that is not a positive message. To further make things worse, they are even talking of price controls. You cannot run a liberalised economy on the back of anti-liberalisation policies,” he added.
“So, the government should tone down on their statements. Let them deal with some of these pressures in a manner that does not trigger emotion because ultimately, they are now beginning to send a fright to potential investors. So these perceptions and sentiments, and also the uncoordinated policy statements are impacting on the negative performance of the kwacha.”
Nkoma said there was still need to find long-term, sustainable solutions to fix the troubled kwacha.
“To be able to address the structural disconnect on the fiscal side, we have to find a long-term and sustainable solution around how the kwacha is performing. Perception is what generates confidence, and that is what is lacking. We can’t have ministers issuing policy statements which are uncoordinated; [labour minister Fackson] Shamenda was saying the government will take over mines, then today (Friday in Parliament), [mines minister Christopher] Yaluma says government has no capacity to run the mines,” said Nkoma.