Former ZNBC Director General and leading Economist Chibamba Kanyama has disclosed that what is helping the Kwacha to appreciate is the fact that Zambia is currently not servicing any of her [US dollar denominated] external debt, which is resulting in the economy accumulating some reserves.
Speaking in an exclusive interview with the Zambian Business Times – ZBT, Kanyama said the major reason why the local currency is in the position it is right now apart from the [improved] copper revenue, is the fact that Zambia is not servicing external debt.
He said it is currently difficult to state or know whether the current appreciation of the Kwacha will last or not because it is not based on fundamentals but on defaulting on debt repayments.
“The major reason the kwacha is where it is now apart from the copper revenue, is that we are not servicing external debts. We have been defaulting on external debt since last year.
“Imagine if we were paying as we were supposed to be paying this debt, we would not have a big reserve right now. We would not have the dollars because it could have been going to the creditors now because we are not paying them we have accumulated enough dollars,” Kanyama said.
He said, “all we have done as a country is to postpone a problem to the future but one thing you should remember is that people we are defaulting to do not mind much because they are charging us interest on interests.
Kanyama explained that the fund holders and creditors were currently charging penalties on the interest and not on the principle. He revealed that currently the penalties for defaulting are standing at over US$1 billion.
“They are charging on interest alone not the principle amount, it is the penalty on default not the interest repayment on the principle but penalties for defaulting are now over US$1billion. So they are actually happy because they know that we won’t default for a long term, so the longer we take to pay them the more debt we accumulate and the more money they will make out of us,” Kanyama revealed.
He said, “For us, we are saying at least here, it’s okay, we need to survive because of the things happening around so let us not pay them so that we can use the money to prop-up the Kwacha.
Kanyama said this is why it is difficult to know whether this kwacha position will last or not because the money being used to strengthen and increase supply in the market is not ours but money owed to the creditors.
“So instead of getting the dollars from the market, we are holding on to the reserves we are having from copper and so on, to pump into the market instead so that the kwacha is stable. But, there will come a time when we will have to pay back, and it will be bigger than what we should have been paying because we have been defaulting,” he added.
The Kwacha has poster over five percent gain in the last two weeks against major convertible currencies such as the US dollar. It has even breached the 1US$ per K18 range with Kasumbalesa (a forex hotspot) bureau de change rates trading at US$1 to K18.1 to K18.4 range. Bank rates in the capital Lusaka are still trading in the K19 per dollar range.
