The Kwacha has come under serious pounding, depreciating by more than 60 percent against the US$ since the beginning of the year on account of lower copper prices, electricity shortages and waning market confidence in the PF led government’s capacity to respond effectively to the collapsing economy. The deterioration of the Kwacha is far greater than that of other currencies in Africa, indicating that Zambia-specific factors are at play. Waning market confidence has also been evident in widening spreads on Zambia’s Eurobonds, where yields have gone above 10 percent.
Policy inconsistencies have largely contributed to the current economic malaise including the introduction of a new mining tax regime, withholding of US$600 million VAT claim by exporters (this is the genesis of the problem that Zambia is facing today – at the stroke of a pen Zambia Revenue Authority destroyed the gains made in the Zambian economy), fiscal deficit is projected to reach 10.0 percent of GDP this year, against a projected outturn of 4.5 percent although it does not include the cost of emergency imports of electricity and increased debt service arising from the increase on the Eurobond yields to more than 10 percent.
Bank of Zambia has pumped a total of $260 million into the economy in the last four days. It has only remained with a total $2.0 billion in foreign reserves, which can keep the Kwacha afloat up end of November 2015.
According to government sources, during the meeting with the President recently at State House, Bank of Zambia Governor Denny Kalyalya warned the president Edgar Lungu that it would not be prudent to use the remaining reserves as the country will witness a total collapse of the economy in 2016 if it happened. The Governor has told his close confidants that he would rather lose his job than preside over a decision that will bring the country to its knees. It is prudent for citizens to brace themselves against the hard times through keeping dollars.