Kwacha recovers on revocation of SI 33, 55 THE kwacha has sharply appreciated by two per cent on interbank following the revocation of Statutory Instruments number 55 and 33 by finance minister Alexander Chikwanda. And Chikwanda says the government is firmly in the driving seat to steer the economy to greater economic prosperity which is only possible if all Zambians are active agents of development. Announcing the revocation of statutory instruments number 33 and 55 this morning to address the free-falling kwacha, said Zambias foreign exchange market was an imperfect market controlled by a cartel that was influencing the recent kwacha depreciation against major convertibles. The Kwacha which this week hit its all time low of K6.45 against the US dollar opened trading yesterday at K6.28 and closed at K6.15 against the dollar on interbank. Chikwanda said President Michael Sata had permitted the revocation of the statutory instruments. Last year, Chikwanda signed SI 55 on balance of payments which empowered the Bank of Zambia to monitor inflows, outflows and international transactions while SI 33 prohibitedusing foreign currency for domestic transactions. This government is a product of the wishes of the people…just in the course of this week, we had an interaction with the business communityand they made very strong statements about SI 33 and SI 55 and what the government said was ok, lets revoke these instruments and then we can look at various ways in which we can safeguard national interest, Chikwanda told journalists this morning. We cannot totally ignore the feelings and sentiments of the people. I have consulted my principals and we have agreed that the best thing at the moment is to revoke these statutory instruments…this issue of protecting of Zambian interest will not disappear with the revocation of these statutory instruments. Chikwanda did not however state how long the consultations would last before the government could consider restoring the two SIs. And Chikwanda said lack of significant participation of Zambians in the economy had resulted in foreign exchange market being controlled by a cartel of foreign companies. These exchange rates are not determined by market forces, to some extent, there are market forces but very imperfect market forces because the exchange rates in Zambia are determined by the banking system through their interbank lending arrangements, he said. So, its determined by a cartel; by an oligopoly because there is no meaningful Zambian participation apart from small banks like Investrust and so on. These banks are foreign players, so, the sensitivity towards public interest is not as high as it is if there was more meaningful Zambian participation. The long-term cure is for enhanced Zambian participation. The so-called market determination of the kwacha exchange rate is an imperfect market. Chikwanda said SI 33 and 55 were passed principally to support the implementation of monetary policy. However, challenges have arisen in the implementation of these instruments… To allow for further consultations, government has decided to revoke these Statutory Instruments with immediate effect, said Chikwanda. We need to intensify efforts aimed at enhancing Zambians participation in the economy. We think that the downward trend in the kwacha parity is a temporally phenomenon and thereare quantifiable factors and also non-quantifiable ones like sentiments andperceptions. The nominal exchange rate of the Kwacha to other currencies, particularly the dollar, has come under pressure, depreciating by up to 13.6 per cent since the last quarter of last year. The depreciation accelerated in the last few weeks. BoZ had raised the monetary policy rate by 0.50 percentage points and adjusted the statutory reserve ratios for commercial banks to 14 per cent from eight per cent effective March 10, 2014 to help halt the kwachas free fall. BoZ has since spent US$178 million to help halt kwacha deprecation which led the currency to be ranked worst performing in Africa this year. Chikwanda said since the coming to power of the PF, the nation had continued to post favourable economic outcomes. This positive performance has been made possible because of the strong partnership and collaboration of all stakeholders. It is the intention of government to continue fostering this partnership in order to consolidate the long term prospects of our country, he said. The economy has remained strong and stable. The Zambian economy is among the ten fastest growing in the world and among the four fastest in Sub Saharan Africa. Chikwanda said for the country to continue on the path of strong growth, it was imperative that it expands its productive capacity by investing in infrastructure development. ON the fiscal front, Chikwanda said 2013 was a challenging year. This was principally on account of important measures we took to address several structural factors that had the potential to significantly undermine fiscal policy over time if not addressed in a timely manner, he said. These factors included the payment towards arrears for fuel and maize subsidies as well as a higher than planned wage award. These expenditures resulted in the fiscal deficit increasing from the planned 4.3 per cent of GDP to a preliminary outturn of 6.7 per cent. Chikwanda said factors currently affecting the exchange rate were domestic and external. He explained that on the domestic side, there was a decline in the Balance of Payments Position that showed a deficit of US$344.9 million compared to a surplus of US$726.7 million in 2012. On the external front, happenings in the big economies such as the United States of America and China have negatively impacted our commodities resulting in a slowdown in foreign inflows, which has adversely impacted on the exchange rate, he explained. The current depreciation of the currency does not necessarily imply a weakening of our economic fundamentals. The weakening in the Kwacha parity is temporary and government will not be tempted into interventions that may just end up affecting our as the reserves, as doing so will only artificially stabilise our exchange rate and make us more vulnerable in case of continued volatility. In the long term, we will need to increase our resilience to shocks by accelerating the diversification of the economy away from copper to ensure resilience to global financial shocks.~Patriotic front news update
Posted on: Fri, 21 Mar 2014 19:05:52 +0000
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