IMF - Zambia Watch (March 2015)

Editor's note: The latest IMF statement on Zambia is a diplomatic way of saying the macroeconomic situation in the country, though potentially promising, is unfortunately in a big mess and needs fixing urgently. It has been poorly managed. Not in enough forward thinking to deal with the present challenges. Zambia appears to have a dangerous cocktail of poor fiscal and monetary management coupled with external pressures. No surprises in the statement except that there appears no hints of possible IMF funding support to help as they previously suggested.

IMF Staff Completes 2015 Article IV Consultation Mission to Zambia

Press Release No. 15/148

March 31, 2015

An International Monetary Fund (IMF) team led by Tsidi Tsikata visited Zambia during March 19-31 to complete discussions for the 2015 Article IV consultation. This followed initial discussions in December 2014, prior to Zambia’s recent Presidential by-election. At the end of the mission, Mr. Tsikata issued the following statement:

On the Kindle

I recently stumbled on this book Economics for the Curious: Inside the mind of 12 Nobel laureates. As it says on the strap line, it is basically a collection of short articles from 12 Nobel laureates in economics edited by the Nobel laureate Robert Solow.

There are some good essays in there (e.g. Krugman on "depression economics"), but also some difficult ones follow (e.g. Nash on game theory). My favorite one was from Finn E Kydland on policy commitment. Here is a great quote on Ireland that sums up the importance of credible policy commitment :

Mining Tax Reversal

President Lungu has signalled the possibility of a spectacular policy climbed down over the mining fiscal regime. He has proposed potential options for changing the 2015 mining tax regime. Among the options include abandoning the Sata mining fiscal regime altogether. Full statement from State House below :

His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia has directed the Minister of Finance and Minister of Mines and Minerals Development to effect changes to the 2015 Mineral Royalty Tax by 8 th April 2015.

In letters to the two ministers today, President Lungu stated that after receiving submissions from individual mining companies and the Chamber of Mines, he has noted that the new tax regime poses a challenge to some mining houses. The President also noted that some mines are high-cost while others are low-cost operations.

Kwacha Contradictions

The Kwacha's crisis shows no signs of ending soon. It is closed on Friday at  K7.7 per $1 (K8.2 per €1 and K11.4 against £1). The current historic collapse is against all major currencies. The two men tasked with stabilising it have been talking. So far we are only getting a tale of contradictions between Alexander Chikwanda [Finance Minister] and Denny Kalyalya [BOZ Governor] over the domestic causes of the current Kwacha crisis.

Alexander Chikwanda's statement to Parliament:

On the domestic front, the major reason for the weakening of the Kwacha is the palpable demand/supply disequilibrium. In other words, the demand for dollars principally and other currencies exceeds supply. At the beginning of the year, the foreign exchange earnings inflows are slow because of the time lag effects in the realization of export earnings, while lower copper prices have further constrained supply conditions. In general, net monthly supply of foreign exchange in 2014 exceeded US$100 million. However, at the beginning of 2015 this fell to around US$85 million.  (Source: Ministry of Finance, 3rd March 2015)

Killing the Kwacha, Revisited

The Kwacha has fallen to a record low against major global currencies (dollar, sterling and Euro). It currently stands at around K7.4 per US$1. This is worse than the collapse last year. 

The recent sharp falls appear to be driven by the strengthening of the dollar, as well as concerns around Lungu's health which has amplified existing policy uncertainty. But that is only a small part of a larger negative trend.

The Kwacha has been steadily falling since September 2014 after a period of strengthening last year when BoZ tightened liquidity and Chikwanda abolished SI33 & SI55. That is if you believe Gondwe and Chikwanda's version of their alleged "heroic" interventions. 

Zambia Fitch Rating (March 2015)

Editor's note: Fitch Ratings yesterday affirmed Zambia's credit rating at 'B', and revised the outlook down from 'positive' to 'stable' owing largely to poor policy coherence and credibility. It also notes a growing fiscal deficit and possibility of slower growth. The Fitch message is that we are doing OK but there are risks which need to be handled or things may get out of hand quickly. 

Fitch Ratings has revised the Outlook on Zambia's Long-term foreign and local currency Issuer Default Ratings (IDR) to Stable from Positive and affirmed the IDRs at 'B'. The issue ratings on Zambia's senior unsecured foreign and local currency bonds have also been affirmed at 'B'. The Country Ceiling has been affirmed at 'B+' and the Short-term foreign currency IDR at 'B'.

Fixing our broken prosecution

The current saga involving the Director of Public Prosecutions (DPP) Mutembo Nchito has generated a lot of commentary. The DPP is important because all criminal prosecution functions in the country are vested in the National Prosecution Authority (NPA) as set out under the National Prosecution Authority Act, 2010. The NPA Board is chaired by the DPP. This makes the DPP the guardian of all prosecutions in the country. The gatekeeper of justice.

Unfortunately, in eyes of many people the current DPP has become nothing more than a political pawn. He is viewed by many, rightly or wrongly, as being part of the infamous Cartel that ceremoniously lost out in the power struggle following President Michael Sata’s death. What seems to have upset many people recently is the DPP’s decision to enter “a nolle prosequi” (do not prosecute) in a case in which he is facing allegations of corruption and abuse of office.

Zambia Debt Watch (Eurobonds, World Bank, ADB)

Government plans to refinance the existing Eurobond debt by issuing another bond. Ministry of Finance recently announced that GRZ “needs to issue another bond to pay off the debt and we will look for creditors that will lend on a low rate". Zambia has two sovereign bonds of US$750 million and US$1billion which are due to mature in 2022 and 2024, when the principal needs to be paid back on top of current interest repayments. (Source: The Post)