The Bank of Zambia – BOZ has been blamed for the current Kwacha slide that has continued to eat away value for Zambian citizens due to the central bank’s lack of intervention in the past few weeks.
According to an Access Bank Zambia Limited note, the Bank has pointed out that the lack of central bank – BOZ intervention to support the kwacha contributed to the local unit coming under pressure.
“The local unit posted another weekly loss. The USD/ZMW currency pair closed the Friday trading session at K17.36/K17.41 compared to the K17.24/K17.29 quoted as at close of the previous Friday. The kwacha continued trading under pressure stemming from the lack of foreign currency on the market. Absence of central bank intervention exacerbated the pressure on the kwacha,” stated Access Bank Zambia in its Treasury Market Update issued recently.
The Kwacha has unexpectedly continued depreciating against major currency convertibles despite the strong international copper prices, news of the removal of Mineral Royalty Tax (MRT) non-deductibility, widely hailed as favorable for mining companies and a looming International Monetary Fund (IMF) economic bailout programme.
Moreover, Zambia received the US$1.3 billion Special Drawing Rights injection from the International Monetary Fund – IMF that boosted foreign exchange reserves to over five months import cover.
BOZ Governor Denny Kalyalya during his first stint as Governor used to blame the perpetual Kwacha depreciation on the fiscal side or uncontrolled government spending. Now that we have a new Minister of Finance [Situmbeko Musokotwane] and some changes in leadership at the ministry of finance, it will be interesting to hear what the current depreciation will be blamed on.
Since the August 12 polls, the kwacha surged against major currency convertibles to peak at K15.94 per dollar by end-August, 2021, mainly driven by positive sentiment of the election outcome which was won by the United Party for National Development – UPND.
A check today by the Zambian Business Times – ZBT revealed that the the local unit has continued to depreciate and trading at about K17.65 per US dollar. This is eroding value from a majority of Zambian citizens whose earnings are pegged in Kwacha.
The UPND government had among other campaign promises pledged to fix the monetary and fiscal regime and deliver a below K10 per US dollar rate for Zambia. With all the key supporting fundamentals such as buoyant copper prices, reserves of over five months import cover and a new fiscal team in place, the continued slide of the Kwacha continues to raise more questions than answers. Efforts to get a comment from BOZ were underway by time of publishing.
