The kwacha has slumped about 27 percent this quarter, the most among more than 150 currencies monitored by Bloomberg, driving up debt-service costs and threatening to fuel inflation and undermine efforts to cut the budget shortfall. The nation’s dollar bonds lost 10 percent in the period, the most after Ecuador out of 31 emerging nations monitored by Bloomberg indexes, as yields on benchmark securities soared 251 basis points to 10.88 percent.
Meanwhile, President Edgar Lungu is considering going the Zimbabwean way by starting to control forex.
President Edgar Lungu may consider imposing exchange controls to stem the kwacha’s “freefall” if other measures fail, his spokesman Amos Chanda said, even as analysts said the country may have to swallow the bitter pill of an IMF programme.
“The president cannot allow a national currency to collapse because of a false belief in a free-market economy fixing themselves even when things are clear that the market won’t fix itself,” Chanda said in an interview broadcast on state television in the capital, Lusaka, on Sunday.
“The president could intervene, through the Treasury of course, to allow the central bank to regulate if the markets don’t behave properly. There are exchange controls as a measure.”
Chanda’s remarks come after Finance Minister Alexander Chikwanda and Bank of Zambia Governor Denny Kalyalya both ruled out exchange controls last week, saying it would only exacerbate the situation.
“They don’t help, they actually accentuate the difficulties,” Chikwanda said in a September 3 interview. “Even the little forex we have would be taken out if we have control of capital movement. You create panic. It’s not a conducive environment. It’s a recipe for getting the country backward.”