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Friday, 28 February 2014

A final word...for now!

This has been a busy week. A few developments over the last two days which I have not mentined. The Kwacha depreciated further against the dollar on Thursday, owing to increased demand from importers seeking to cover their foreign obligations so as to minimise currency losses. The Kwacha opened at K5.780 / 5.810 and closed at K5.795 / 5.825. In the absence of improved supply, the market analysts predict the Kwacha is likely to remain under pressure in the short to medium term. (Source : Cavmont Bank)

The annual rate of inflation, as measured by the all items Consumer Price Index (CPI) for February 2014 was recorded at 7.6 percent compared to the 7.3 percent recorded in January 2014. This means that on average, prices increased by 7.6 percent between February 2013 and February 2014. (Source : Central Statistics Office)

I have also separately shared the piece on GDP rebasing. And you have of course been kept updated on the general currency movements, copper prices, increased borrowing, fiscal deficit etc. So where are we?

It is my tentative assessment that the economy is on the brink. The problem is that Chikwanda and Ngondwe are scrawling in the dark as far as economic thinking is concern. There appears a total disregard for proper fiscal responsibility and policy making is significantly. 

With yields having risen and the Kwacha now in free fall, and an inevitable credit downgrade, I can't see how Chikwanda will be able to afford any new Eurobond issues any time soon. Which of course means huge domestic borrowing and its associated problems. The rebasing of GDP may improve some fiscal deficit and debt metrics, but most astute observers will see a wider picture. This is all without the political risks that are now resurfacing. 

So that is my position. I leave others to make theirs known! Wishing you a good weekend! 

Chola Mukanga | Economist
Copyright © Zambian Economist 2014

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