Zambia's economic woes goes viral

We recently shared this post on Facebook which has gone viral. it has been wonderfully exciting to see it re-shared countless times. Most importantly it has generated interesting discussions about how to tackle the changelings ahead .

There are essentially nine big economic policy challenges facing GRZ :

(1) Very weak copper prices (lowest in 5 years)
(2) Rising debt levels (Highest since HIPC)
(3) High fiscal deficit (likely to get even larger soon)
(4) High youth unemployment
(5) Power deficit (possible blackout in October)
(6) Volatile and falling Kwacha ($1 per K10)
(7) Poor policy credibility
(8) High and rising cost of private borrowing
(9) High poverty levels (80% poverty in some areas)

Zambia Kwacha Chaos : State House Response

Editor's note : President Lungu has issued a formal statement on the rapid depreciation of the Kwacha. The Kwacha today was trading above K10 per US$1. The Bank of Zambia Governor Denny Kalyalya yesterday indicated that he has no plans to halt the depreciation, "It is very clear what our policy is, we are going to maintain a flexible exchange rate". His statement has fuelled further panic with with no end of "bottoming out" in sight. Here is the statement released by State House pertaining to Kwacha issues. It largely repeats what BOZ said recently.

Following the deterioration of the currency and energy situation in the country in recent months, His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia has intervened to guide monetary and fiscal policy measures designed to stabilise the markets.

The continued difficulties in the global economy and the unprecedented strengthening of the US Dollar has sent all currencies including our national currency, the Kwacha on a downward spin.

Zambia in Figures (1964 - 2014)

A very helpful statistical pack covering key figures since independence. This should hopefully help eliminate confusion over competing figures quoted in the media.

AUTHOR
Chola Mukanga
Copyright © Zambian Economist 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 The BoZ analysis is looking outdated with every minute.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.

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!

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.

GLOBAL ECONOMIC DEVELOPMENTS 

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.