$1.3 billion SDR to boost Zambia’s reserves – IMF

International Monetary Fund – IMF resident representative for Zambia Preya Sharma has confirmed that countries Special Drawing Rights – SDRs allocations can be used to exchange for hard currency (US dollars) as well as be used to boost fund member countries foreign exchange reserves.

The Ministry of Finance had on the
23 July 2021 confirmed that Zambia has been allocated US$1.3 billion SDR by the IMF and that this amount is contributing to the continued boosting of the country’s US dollar reserves. The Debate however was whether this SDR allocation would actually contribute to increased forex reserves held by the Zambian treasury.

Sharma told the Zambian Business Times – ZBT in an emailed note that SDRs are an asset, though not money in the classic sense because they cannot be used to buy things. She clarified that Countries can exchange their SDRs for hard currencies with other IMF members or can also use the SDRs in a range of operations with other countries or to settle financial obligations to the Fund. She stated that there are no conditions attached to access the
SDR.

“This has historically been done on a voluntary basis, with countries in a stronger financial position agreeing to help others when needed. They can also use their SDRs in a range of operations with other countries or to settle financial obligations to the Fund. Many member countries that don’t need the support have used SDRs to support concessional financing to low-income countries,” she clarified.

Sharma explained that an SDR allocation is a way of supplementing Fund member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.

She said, “an SDR allocation is cost free. Allocating SDRs does not require contributions from donor countries’ budgets. SDRs are a reserve asset, not foreign aid. Most importantly, an SDR allocation does not add to any country’s public debt burden. Sharma told ZBT that the allocation for Zambia could become effective by the end of August 2021.

The Ministry of Finance has partly attributed the recent appreciation of the Kwacha to among other things, the expected allocation of SDR’s to Zambia by the IMF. A statement from the ministry of finance stated that “the SDR allocation is expected to increase international reserves by approximately US$1.3 billion in August 2021”.

And an IMF statement made available to the Zambian Business Times – ZBT has confirmed that the allocation which was approved on August 2, 2021, is the largest SDR allocation in the history of the IMF with SDR 9.3 billion, SDR 12.1 billion, SDR 161.2 billion allocated in yearly installments in 1970–72, 1979–81 and 2009 respectively.

IMF managing director Kristalina Georgieva said the newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund. She said about US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.

“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.

“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Georgieva said.

She said one key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Georgieva said concessional support through the PRGT is currently interest free.

“The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term,” she said.

International Monetary Fund - IMF resident representative

Zambia – Angola continue to miss massive trade opportunity

The development and actualization of the high trade volumes potential between Zambia and Angola has continued to suffer setbacks from lack of serious infrastructure investments in roads and modern one stop border post facilities despite the two countries signing a bilateral trade deal and scrapping off some Visa requirements about 5 years ago.

According to the UN’s COMTRADE data, Zambia exports to Angola in 2020 were a paltry US$1.7m and Angola’s exports to Zambia were only US$220k, for neighboring countries that could do millions if not billions of trade considering that Angola had Oil and Zambia has a diversified Agro produce.

And the Southern Africa Cross Border Traders Association (SACBTA) has revealed that there is need to develop modern border infrastructure including road and other support infrastructure to facilitate cross border trade between Zambia and Angola.

SACBTA secretary General Jacob Makambwe said since Zambia and Angola signed a trade agreement in 2016, very little infrastructure development has been seen at either Jimbe or Chavuma border posts in North-Western Province in terms of roads and border infrastructure itself to facilitate the movement of people and goods.

Makambwe said there is need for the two countries to focus on developing infrastructure especially the road infrastructure that leads to the borders between Zambia and Angola to facilitate trade. To ensure that local traders and SACBTA members participate, land borders provide the best option.

“Trade facilitation can only occur when there is infrastructure. We have some people and businesses that are trading with Angola, but not small scale cross border traders. It is the small scale traders that grow into big cross country traders that would help increase the trade volumes. Currently, only a few traders located say in Chavuma and Jimbe/Ikelengi are usually the ones that are doing some form of trade because they are closer to the borders between Angola and Zambia.

“One of the critical aspects of Zambia and Angola trade, since the Government signed an agreement on trade with Angola, we have actually seen very little infrastructure in terms of roads that leads to the borders and also the border infrastructure itself for facilitation of the movement of people in those particular areas. The only thing that we keep on hearing is the issue of bilateral trade that can take place between the two countries,” he said.

Makambwe said there are many opportunities that lie between Zambia and Angola that need to be exploited for the benefit of the two countries. He said, “We know that Angola has crude oil, we also know that there used to be the proposed Benguela railway that could actually go up to Angola’s capital, we know that agro produce is very expensive in Angola, so these are some of the critical infrastructure that needs to put in place if the two countries want to enhance their economic growth and realise regional integration through trade.

“So you see, like for example we are talking about the Kazungula border now because of the bridge that has been constructed, but the bridge on its own is not just enough, we also improved on road infrastructure at the border and put up a one stop border post because these are the critical infrastructure for regional integration and trade,” he said.

He noted that Angola is part of the Southern African Development Community (SADC) where there have seen many business proposals on how Angola can become critical to some of the SADC member countries. Most members of SADC including Zambia need say Crude Oil from Angola which can land with lesser transport costs when compared to imports from the Middle East.

Makambwe noted, “Again, if you talk about regional integration, countries have signed agreements to do with the African Continental Free Trade Area (AfCFTA) and SADC is also part and parcel of the agreement, so all these economic blocs need to interconnect each other through trade, meaning that we need to trade more with each other.

“You know that there has been one aspect that the government of Angola and Zambia have agreed on which is to waive or remove visa restrictions or requirements for people to go and do trade. But again you see that the pandemic has also brought in another dynamic that would continue to restrict people from moving.

“If there can be improved border management infrastructure between the borders for the two neighboring countries, it can be okay. But also, its not only from the Zambian government, there is need for Angola as well to respond from its side in terms of border infrastructure, and this can facilitate the initiation of serious small scale trade that would then grow to also encompass medium to large scale trade between Zambia and Angola,” he added.

The development and actualization of the high

Kwacha appreciation attributed to external debt defaults – Kanyama

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.

Former ZNBC Director General and leading Economist

BOZ commended for improved efficiency in forex trade

The Association of Bureaux De Change of Zambia (ABCZ) says the upward adjustment of the daily limit for over the counter cash transactions from the erstwhile US$1,000 to the current US$5,000 has improved efficiency in forex trading market in Zambia.

ABCZ president Paul Kalumba said while numbers may not have changed significantly in the market, the efficiency of trading has greatly improved. He told the Zambian Business Times – ZBT that the move has also helped increase the supply of US dollars in the formal system.

“That was a good decision by the Bank of Zambia – BOZ, though numbers might not have changed much on the market, but efficiency of trading has greatly improved.

“What this actually tells you is that previously, people must have been trading off the market to meet that number. Because what happens is if you went to the bureau, you have 5,000 to sell to the bureau, and the bureau says no, then you go and sell to the black market. For example in Kasumbalesa there, that’s what would happen,” he said.

Kalumba said, “Now people are able to go into bureaus and be able to transact. It has also helped increase the dollars in the formal system because all those people who used to sell to the black market say in Kasumbalesa there; they are now coming to the bureaus”.

He noted that US$1,000 about 20 years ago was a lot of money, but now, no one travels with such an amount to do business hence the move to revise upwards to US$5,000 for over the counter transactions was a very good initiative.

Bank of Zambia (BoZ) adjusted upwards the daily limit for over the counter cash transactions for customers from the US$1,000 to US$5,000 to allow customers to sell or buy forex over the counter up to a maximum limit of US$5,000 to facilitate growing business needs and volumes.

The Central Bank also adjusted upwards the daily limit for over-the-counter cash transactions for commercial bank account holders from US$5,000 to US$10,000 to allow customers to sell or buy forex over the counter up to maximum of US$10,000.

The Association of Bureaux De Change of

July Inflation stays flat

The Annual inflation rate for July 2021 has remained flat at 24.6% same as that recorded in June 2021 as Kwacha continues with a bullish trend and appreciating against the United States Dollar.

This means that on average, prices of goods and services increased by 24.6 percent between July 2020 and July 2021 which reflects the easing of inflation for both food and non-food items.

Zambia Statistics Agency (ZamStats), interim statistician General Mulenga Musepa said the annual food inflation for July, 2021 was recorded at 31.2 percent same as that recorded in June 2021.

Mupesa said during the July monthly bulletin presentation on Thursday, July 29, 2021, which the Zambian Business Times-ZBT attended that the non-movement of the food inflation was mainly attributed to the relative price stability for food items such as Dried Kapenta like Mpulungu, Siavonga and Chisense, Cooking Oil and Vegetables such as Rape, Tomatoes, Cabbage, Dried Beans.

Some of the most sort out food items whose prices are still on the high side include cooking oil, meat products, eggs and dried Kapenta.

Among the most essential foodstuffs, brisket and mixed cut recorded the highest year on year inflation rate both at 55%, while fillet steak and rump steak were second and third respectively at 54.56% and 53.51%.

“The annual non-food inflation rate for July 2021 was recorded at 17.0 percent compared to 17.1% in June 2021. This was mainly due to price decreases in Clothing & Footwear, Men’s and Ladies leather shoes, Sports shoes, Boy’s school shoes & Miscellaneous goods and services such as Shampoo, Dettol, Umbrellas,” he said.

Meanwhile, a disaggregation of the annual inflation rate by province shows that the annual inflation rate for July, 2021 increased for Copperbelt at 24.0% from 23.6%, Eastern at 24.6% from 24.4%, and North Western at 23.3% from 21.4%.

Annual inflation rate for July decreased for Central at 25.8% from 26.5%, Lusaka at 25.8% from 25.9%, Northern at 32.0% from 32.1% and Western province at 24.9% from 26.2%.

Mupesa said Provincial annual inflation remained the same for Luapula and southern at 21.5 and 18.4 percent respectively.

Provincial changes in annual inflation rate showed that in July 2021, Northern Province had the highest annual inflation rate at 32.0 percent, followed by Central and Lusaka provinces both at 25.8 percent while Southern province had the lowest at 18.4 percent

The Annual inflation rate for July 2021