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Thursday, 3 September 2015

Zambia Kwacha Chaos: BOZ Response

Editor's note: A recent statement from the Governor of the Bank of Zambia on the sharp depreciation of the Kwacha which has seen it breach K9 per US$1 and now looks inevitable to reach K10 as copper prices tumble and the fiscal deficit worsens. The BoZ analysis is looking outdated with every minute.
Having had our Quarterly Media Briefing earlier in the month we thought we would not be coming back this soon. However, global economic developments over the past two weeks have had such adverse effects on many emerging and developing economies, including Zambia, and thought that our explanation of the developments would assist our local economic agents and the general public to have a better appreciation of what is going on and therefore avoid taking actions that will compound the situation.

Wednesday, 2 September 2015

Zambia MTEF 2016-18 and 2016 Budget

The Government has released the Medium Term Expenditure Framework (MTEF) for 2016 - 2018 and the outline for the 2016 budget. This is essentially the PF plan for re-election as this will be last budget outline before the elections in 2016 [actual budget due next month]. The document certainly merits close study, but sadly a quickly glance through the MTEF already shows that the assumptions on copper prices and growth looks rather outdated. Shockingly although wages already account for more than 52% of tax revenues, government plans to increase this even more in the 2016 budget at a time when the economy appears to be life support.All on a quick glance of course!

Tuesday, 1 September 2015

Zambia Monetary Policy Statement (August 2015)

Editor's note : The Bank of Zambia released its quarterly monetary policy statement in August. It noted the need for fiscal consolidation, by addressing revenue shortfalls and rationalising expenditures, in order to achieve fiscal sustainability and lower government security yield rates. 
The Monetary Policy Committee (MPC) held its meeting on 10th August 2015. The MPC considered developments in the global and domestic economies during the second quarter of 2015, the outlook for the third quarter and to decide on the monetary policy stance aimed at achieving the Central Bank’s inflation objective in order to support macroeconomic stability.


The Committee observed that the trend of weak growth in the global economy evident in the first quarter of 2015, was sustained during the second quarter. Major emerging market economies, such as China, Russia and Brazil, continued to be sources of weakness to global economic growth, with deflationary consequences on most commodity prices. Over the quarter, the average prices for copper and crude oil (Dubai), for example, fell to US $5,833.0 per metric tonne (mt) and US $ 61.3 per barrel from US $6,295.0 per mt and US $63.7 per barrel, respectively. In addition, the brighter growth outlook in advanced economies, particularly in the USA, increased the prospects for interest rate hike over the next 12 months. This shifted investor preferences in favour of US dollar denominated assets and further supported the strengthening of the US dollar. As a result, there was pressure on the currencies of emerging market and developing economies which led to increased currency volatility and outflow of capital from these economies.

Monday, 17 August 2015

Broke Parastatals

An interesting statement from Finance Minister Alexander Chikwanda. He says only 7 parastatals are currently declaring dividends. The rest are loss making :
There are as many as forty State-owned enterprises. Of these, seven parastatal companies declared dividends..This is a small figure, meaning that the other parastatal companies are not performing to the expectation of the taxpayers who put money in these entities. We are, therefore, at liberty to show concern that so many State-owned enterprises are not declaring dividends... it would be logical to wind down the companies that are not doing well because the alternative would be to overburden the already over-extended taxpayers to find money to run the parastatal organisations. Therefore, I think that it is quite a reasonable proposition that companies that are not doing well, and may not do well in the foreseeable future be liquidated (Source : National Assembly)
The seven parastatal companies that declared dividends mentioned by Alexander Chikwanda are (a) Afrox Zambia Limited; (b) Kagem Mining Limited Company; (d) Mofed London; (e) Nanga Farms Private Limited Company; (f) Zambia National Commercial Bank (ZANACO); and, (g) Mulungushi Village Complex Limited.

Saturday, 15 August 2015

Austerity or Bust?

A recent article by the Government think tank ZIPAR on Zambia's rising Eurobond debts carries the following observation :
With the [current] economic malaise, it is therefore not surprising that the [recent] third Eurobond, at an annual interest rate of 9.375%, is more expensive than the 2012 and 2014 Eurobonds whose interest rates were 5.375% and 8.5%, respectively. This means Zambia will pay US$117.2 million annually in interest until 2025 on this new Eurobond alone. Between now and 2022, interest payments for the three Eurobonds will increase from US$125 million to over US$240 million annually (Source : ZIPAR)
We would suggest that the situation is actually much worse than painted by ZIPAR. Government does not just need to pay back the interest, it also needs to pay back the principal (the actual money owed), when the three bonds mature on different dates.

Wednesday, 12 August 2015

The Constitution of Zambia (Amendment) Bill 2015

The Government has published the Constitution of Zambia (Amendment) Bill 2015 which will take forward the enactment of specific clauses which are not subject to the referendum. The public are asked to study and engage their parliamentarians before it makes it way into the House. You can read the accompanying Constitution of Zambia Bill, 2015 (12 pages)  via the National Assembly. 

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