Zambia’s central bank said the drop in the kwacha to near the weakest levels in 4 1/2 years against the dollar is temporary and that the currency of Africa’s largest copper producer is set to rebound.
The kwacha will be in “equilibrium” at a rate of 5.30 to 5.40 per dollar, Emmanuel Pamu, financial markets director at the central bank, said in an interview in Lusaka yesterday. The kwacha has retreated 4.1 percent over the past month, falling to 5.56 per dollar on Nov. 19, the lowest close since May 2009. It was unchanged at 5.5050 per dollar as of 7:17 a.m. in Lusaka, the capital, after declining 0.2 percent yesterday.
The currency’s slide is a “random walk,” Pamu said. “It doesn’t concern us too much. We expect some correction.”
African currencies from the Kenyan shilling and Nigerian naira to the South African rand and Malawi kwacha have weakened against the dollar this year partly as the Federal Reserve considers an end to stimulus that drove demand for emerging-market assets. A 12 percent decrease this year in the price of copper, which accounted for 82 percent of Zambian exports in September, has compounded the kwacha’s fall, Pamu said.
Fitch Ratings last month lowered Zambia one step to B, five levels below investment grade and Standard & Poor’s downgraded its outlook to negative, retaining its B+ rating. Yields on the nation’s $750 million of bonds have climbed 224 basis points, or 2.24 percentage points, to 7.4 percent since being issued in September 2012 compared with an average 133 basis-point increase for dollar-denominated African debt, JPMorgan Chase & Co. indexes show.
Deficit Swells
The nation’s budget deficit is forecast to swell to 8.5 percent of gross domestic product this year, compared with an earlier estimate of 4.3 percent, as funding needs are pushed higher by government spending on wages and subsidies. A weaker currency pushes up prices in the land-locked nation that imports everything from oil to breakfast cereal.
Yields on Zambia’s one-year treasury bills have climbed from less than 10 percent at the start of the year to 15.25 percent at the latest auction last week. Government has been increasing the amount of debt it auctions to meet spending requirements, Pamu said.
The size of bond auctions isn’t expected “to be going down,” which will inevitably push yields higher, he said. “If you have financing requirements that are higher, naturally the interest rates are expected to also be higher.”
Government spending will rise 33 percent to 42.7 billion kwacha in 2014, Zambian Finance Minister Alexander Chikwanda said last month. The country will borrow 3.5 billion kwacha locally and 7.5 billion kwacha abroad to fund next year’s budget shortfall, which government expects will be less than 6.6 percent of GDP.
Source: Bloomberg
what can you expect if call boys are in charge of the economy? their co-occupation is killing and maiming each other for money. you cannot put a toilet cleaner to be a cook and still expect delicious food to come from him. its a dream
And then an accountant Pamu fails to explain why the currency is sliding except to say that past trends do not predict future trends. With the current investor unfriendly policies the slide is probably an indication that FX is now being purchased and smuggled out of the country in cash.
The CNP ( Chimbwi No Plan) at work. We surely need an economic messiah to redeem Zambia . A real man like HAISA HAISA – HH.
Who is going to simplify for Ukwa?
What rate is going to be in 90 days? Any bets?
If we are not careful, the zeros we lopped of from our currency will quickly climb back on our notes and the exercise will have been in utility! Aren’t we always reminded that there is some man of cation some place?
exercise in FUTILITY, I mean
Imwe banthu, you scare away FOREX when you are continously breathing wild fire on multi-national CEOs. Mulibe tact olo one. Your stupid tongues are costing us now.
The Cobras acidic tongue is dissolving forex availability! Go Sata Go! Reduce Zambia to a cesspool! You’re almost there, the Man of Action. Lekeni Sata ateke! Seleni tubombeko! Boma ni Boma! Sata balances ( Northern) brains not tribes! Your bitter! Kwaaaah!
We still have Fine Brains like Dr Pamu and Dr Musongole who have affected many students of Finance positively, Dr Musongole a good statician and very intelligent and Dr Pamu a gifted economist very passionate about it.
We can unwind above given repositioning of policy framework for the poor Indicators above.
On exchange rate and currency, lets relook at our reshime from a domestic point of view in monetary policies positioning our fiscal policies well whilst down weighting and overweighting our positions in assets classes to avoid such durations and rate shocks creating opportunities for value whilst increasing reserves to reduce and cushion deficit.
We need not be always watching what…
@jonathanmhango
Very funny..I thought Emmanuel Puma said “It is a random walk”.Which presumably means that he does not know yet if the slide will be long-running or not.
I only pray that the chinese will soon be done with cooling their economy and those high demands for metals will return.Which is savior..Can someone please utilize this window of opportunity of chinese economic gluttony to diversify our economy.It is almost like an emergency,the Chinese miracle will not last forever.
Pamu lacks basic economic theory. Use of the term ‘Random Walk’ does not make one an economist. That was his failing as Director of Economics Dept. I can agree with the assessment of Max Musongole.
The rate shock or duration of 2.24 percent on 750USD is something to watch and carefully modeling it whilst creating enough insurance/derivatives/margine to cover the trend if not convered in the indenture
Below 1 % will be said to be acceptable but not necessary likeable
I read well that is why I said a rate reshime I understand its like you actively see the unfolding before even the FEDS see avoiding following the clock as we have been traditionally talk beating them at their things.
We sometimes wait to see and then act following without firmly positioning ourselves to even lead and turn the tables
As for for the USD 750 duration of 2.25 its way above the norm of less than 1%.Lets see the price rate chart and project the approximation of the rates and price of the bonds looking at the rates trajectory creating hedging strategies in assets inversely correlated to ensure we fulfill the indenture in coupons and principal and suffer the rate shocks
Translated:
Let see and wait for next 90 days?
Its not good I agree to have it free floating like a pegged trousers with much market efficiencies “Margin Losses”
Certainly a graduation of technical analysis to models predicting the movements will help much even a simple bootstrapping method can add plus or minus given the Zambian few key economic indicatorsIn short I am trying to say understanding key variables in the economy planning and factoring the model long-term with clear policies will reduce the above average deviations.It means understanding the game and the players and tactics ,the fields, their coaches and you also knowing your team listening well and positioning to attack retreat and defend accordingly when the game against…
Always look at the international market before you put up your foolish and unsound statement.
The Doc needs to be encouraged we to collectively work all sectors proactively will help Zambia.
You can have a global analysis to regions then nations then provinces then districts then industries then firms then individuals or alternatively from individuals up to the global.Stop watching markets to shape your thinking but rather use markets to shape your strengths and position Running the book strategy with sky news as a shaping tool. Take the lead and let the markets as the clock paces find you readily available for you?????
What seems to be lacking is a firm longterm lasting flamework to the development of the National economy and its Financial services otherwise we have been known to be hardworking and often providing support to others to develop without us developing.Its the same doctors and other professionals at the back of many economies within and across including supranatiivingonal institutions at the expense of the nation.Lets support the few that are trying to promote the systems to the support of the most populase and poor to develop the county
The list is long from world bank,IMF,Frurkfut,ugunda,sa,na,Bots,Congo even Dubai you meet them often at seminars well articulate but here still struggling
Finally as i lets run a well informed intelligent and coordinated economy carefully looking at our positions