UPND explains consequences of fake Kwacha appreciation

 

It’s Too Soon To Celebrate The Kwacha Appreciation
We have been asked to give a candid response about the sudden appreciation of the kwacha. Ours is a measured response devoid of politics but full of intellectual reasoning.

When the kwacha was depreciating, we were told that the situation was global. Now that it has appreciated, the PF is claiming that it is a result of measures taken by the Government.

How did we get to the levels of one dollar trading at 14 kwacha? It was lack of investment, inconsistent policies (u-turns), load shedding, and fiscal indiscipline. All these things are still happening as we speak.

There is no logic in this appreciation except to say that it is largely driven by two things. The first is that the Bank of Zambia has tightened monetary policy. This is a temporary intervention (firefighting if you like) which gives us temporary relief. By his own admission the Minister of Finance Hon. Alexander Chikwanda issued a statement to that effect. Monetary policy has never been a long term strategy. Those that care to follow economics will recall that when Europe was slowing down, the European Central Bank (ECB) had to even make interest rates negative to stimulate the economy as a temporary measure to kickstart the European economy. Whereas ECB was pumping money into the economy, BOZ is doing the reverse, syphoning off cash from the economy using Treasury Bills and raising the policy rate, which now stands at 15.5%. As the kwacha is syphoned off, money becomes a problem especially for small-scale traders. What will happen next is that few traders will be able to afford to restock their shops and this will drive inflation upwards due to demand for goods which will be in short supply.

The second dimension is that most international organisations whose financial year ended on 31st March are buying kwacha to pay their financial obligations in the local currency. This, coupled with the lack of money in circulation, has caused the kwacha to appreciate. How long will these measures hold? We wait and see.

What does the future look like? The government owes contractors money. These contractors are foreign and will immediately, they are paid, externalize the money. They will need to buy dollars and we will see the kwacha start sliding back to its normal probably at more than 12 kwacha to a dollar. Secondly, the Eurobond payments will need to be made, this will also have an effect on the exchange rate. Thirdly, economic activity will continue being minimal, Spar Chilenje closed, that is a sign of things to come. Just take a walk to Soweto and ask how much a box of tomatoes is costing. At this time of the year tomatoes should be cheap because coming out of the rainy season, even those farmers that have no irrigation systems will plant tomatoes, thereby flooding the market with the product, but they did not grow it.

What we need in this country is a stable currency, not a currency that fluctuates like a see-saw. This makes planning very difficult for the private sector. Those that want to invest in this economy would rather hold on until some form of stability is achieved. Until Zambia starts exporting or stops importing everyday consumables, we should forget about a strong economy and a strong kwacha.

Charles Kakoma
UPND spokesperson

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