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Tuesday, 27 May 2014

Killing the Kwacha : another record fall

We always like to share reports from other news sources so that you have multiple angles on the issues affecting Zambia. We aim to encourage debate and action not indoctrinate our views. See below on what Bloomberg reported on the Kwacha today.

It goes without saying that though Razia Khan is correct that supply of foreign exchange is somewhat below its levels from some players (but not GRZ given the Eurobond), a more astute reading suggests the challenge are to do with sentiment. It is not an issue of demand and supply per se. It is simply about sentiment and clearly the fundamentals appear to be weakening given PF's general direction. As we have repeatedly noted, we have to see the Kwacha first within its general trajectory over the last three years, and then since September 2013 following the widening fiscal deficit position and subsequent credit downgrade, tapering of US credit and associated policy mistakes. The key is restoring confidence. Sadly, that may become challenging if the gathering suggestions that we may be  on the precipice of a major political risk are to be believed : 

Zambia’s kwacha retreated to a record low against the dollar, depreciating more than any other currency in the world this month, as lower copper prices and a tax dispute with mines curbed foreign-exchange supply.

The currency of Africa’s second-largest producer of the metal, used for electrical wire and water pipes, weakened as much as 2.3 percent, the biggest slide in two months, to 7.035 per dollar. The kwacha was trading at 6.9610 as of 2:03 p.m. in Lusaka, the capital. That extended losses in May to 9.4 percent.

The price of copper, which accounts for about 70 percent of Zambia’s foreign-exchange earnings, has declined 6 percent this year. Zambia Revenue Authority withheld more than $500 million in value-added tax repayments to mines, saying they didn’t comply with rules requiring import certificates from the countries their copper ends up in. The dispute is close to being resolved, the Chamber of Mines said on May 23.

“Supply of foreign exchange from the mines just hasn’t been up to the usual levels,” Razia Khan, head of Africa research at Standard Chartered Bank Plc (STAN) in London, said by phone today. The mining companies may be retaining foreign currency in expectation of receiving the VAT repayments, she said.

The slide in the kwacha seems “overdone” as relatively high yields on government securities may attract foreign buyers, Khan said.

Yields on Zambian 91-day Treasury bills rose 50 basis points, or 0.5 percentage point, to 9.5 percent at an auction on May 15. Rates on the nation’s Eurobonds due April 2024 dropped 9 basis points to 7.63 percent.

(Source: Bloomberg)

1 comment:

  1. The problem I have with all neoliberal parties, is that they are trapped in the neoliberal world view. The policies of the IMF/World Bank are not intended to develop any country - they are intended to beef up the bank accounts of the families who own the banks which own the mining and oil companies - the British and Dutch crowns, the Rothschild, Rockefeller, Koch, Mellon-Scaife and similar oligarchic families. And their captains of industry, like Anil Agarwal, Tony Hayward, Oleg Deripaska, etc. - historically JP Morgan, Cecil Rhodes, the Oppenheimer Family.

    When people are self sufficient - they produce what they consume - the oligarchs cannot make a profit. Therefore creating dependence is the core of the monopolists' business model. Right now, they are trying to replace their oil monopoly with a water monopoly.

    That's what we're up against. And that is also our way forward - local and national selfsufficiency.

    The response from Hakainde Hichilema of the UPND:

    (LUSAKATIMES Kwacha fall can be arrested by introduction of proper tax on the mining sector -HH
    Time Posted: May 31, 2014 1:20 pm

    The continual sliding of the Kwacha is not only an indication of the PF’s failure to run the economy, but it actually borders on economic sabotage.

    It is unacceptable and embarrassing that since PF took over power in 2011, our currency can today be on free fall where it is always being declared as the worst performing currency in the world, as if there are no people running a government in place.

    The excuse being given that the weakening of the currency is as a result of low copper prices does not hold water because the metal prices are way still higher than 2000s when the Kwacha was still doing better.

    To cure the situation, the PF must first accept that among the reasons for the depreciation of the Kwacha are careless policies and wanton expenditure that are having a telling effect on our fledgingeconomy.

    By deciding to tie all the revenues and borrowed money into infrastructure, PF have made our economy consume more than it is producing to generate more wealth.

    Also other than the poor policies such as the introduction of statutory instruments 33 & 55 that killed our monetary policies, PF are also not generating enough revenue from the few productive sectors of theeconomy.

    As UPND we insist that the Kwacha fall can also be arrested by introduction of proper tax on the mining sector such as windfall tax.

    As country, whereas we need investment infrastructure, there is also need to heavily release money for the manufacturing sector so as to reduce our heavy dependency on imports, and therefore create jobs.

    With the free-falling Kwacha, we have consigned our small scale businessmen such as cross border traders, motor vehicle parts dealers, those young men and women who make a living selling fruits and other imported items such as toys in our streets and roads to perpetual poverty.

    At this rate, the prices of fuel, basic food prices, fertiliser and other agriculture inputs will continue going up thereby increasing the cost of living for our people.

    Hakainde Hichilema
    UPND President


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