The Kwacha is hovering around K6.5 per $1 and K11 per £1. Well above the levels it reached before SI55 and SI33 were abolished. What everyone is asking is : what will be abolished now? Earlier this month the hapless Bank of Zambia Governor Michael Gondwe gave the following explanation on what has happened to the Kwacha in a speech at the Bank of Zambia Media Seminar :
The Kwacha has been relatively stable in the last few years. However in 2013, the Kwacha was characterised by a depreciating trend against most major trade partner currencies, except the rand. The Kwacha depreciated against the US Dollar by 4.9% to an annual average of K5.39/US$ from K5.14/US$. Similarly, the Kwacha depreciated against the Pound Sterling and Euro by 3.6% and 8.3%, respectively.
This was partly on account of the US dollar appreciation following the strengthening of the US economy during the latter part of the year. The Pound and Euro weakness moderated on the back of optimism that their economies would continue to rebound. The Kwacha, appreciated against the rand by 10.7% to an average K0.5596/ZAR, reflecting the slowdown in mining output, following continued labour unrest in the South African mining sector.In the first quarter of 2014, the Kwacha depreciated by 10.0% to K6.09 per US dollar. This development was largely attributed to a high demand due to a higher growth in imports relative to exports, as well as investor sentiments associated with the tapering of quantitative easing in the United States of America coupled with falling copper prices on the global markets. Similar weakening of currencies was observed in most emerging market economies such as Ghana, South Africa and Turkey.(Source : Bank of Zambia)
This is simply a case of intellectual prostitution. First of all, the Kwacha has been falling since 2011 not since 2013. Everyone can verify this for themselves. He ignores that.
Secondly, the sharpest depreciation Zambia experienced in 2013 was due to the credit downgrade which was caused by the worsening fiscal position. He ignores that.
Thirdly, though Zambia continues to suffer from liquidity tightening in the USA, like all frontier markets, it has performed WORSE than all other African economies. This is why the IMF has singled it out in its latest report. He ignores that.
Fourthly, if the effects of the Kwacha are purely external, then why is the IMF, World Bank and every economist with a basic diploma pointing to the worsening fiscal position as part of the problem? He ignore that!
Fifthly, GRZ's policy response is at odds with Gondwe's own superficial diagnosis. If the effects are purely external - why did the Government abolish SI55 & SI33? Why abolish an instrument that is so critical to monitoring our balance of payments position and deal with illicit flows? He ignores that!
Finally, given the external risks and the fact that many of us warned as early as late 2012, why did Gondwe and Chikwanda not heed those warnings? Why was the risk of falling copper prices, Chinese slowdown and tapering of credit not factored into the economic planning? Why did GRZ go ahead with fiscal recklessness and borrowing despite these early warnings? And why are they pursuing the same policies now? He ignores all these issues!
The country cannot move forward as long we have people like Gondwe in charge of sensitive institutions. His statements reinforce the view held by many that he lacks credibility. Look around the world and see the calibre of people who occupy central banks. People matter in policy making. And Gondwe is the wrong person.
Gondwe has only survived because of the poor journalism and party opposition in this country. He is a lucky man indeed!
Chola Mukanga | Economist
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