BANK of Zambia (BoZ) Governor Denny Kalyalya says the narrowing balance of payments has constrained the central bank’s capacity to build foreign reserves resulting in the volatility of the kwacha.
He has, however, said that the BoZ is determined to significantly build reserves to enable the country meet its external debt obligations.
Dr Kalyalya (right) said building reserves requires a positive balance of payment, which is currently in the negative owing to the fall in commodity prices on the international market.
“One of the things we try to do is build reserves but now building those reserves means you have a positive balance of payment. Unfortunately, exports have been coming down so the overall current account balance has been in deficit and it has been narrowing,” Dr Kalyalya said.
He added: “So our ability to buy foreign exchange on the market has been constrained because the central bank is not expected to be looking for money on the market as you are aware we are not ordinary players.”
Dr Kalyalya said this on a programme dubbed “Government Forum” on Zambia National Broadcasting Corporation’s (ZNBC) Radio Two monitored in Lusaka yesterday.
He said if the central bank went ahead to look for money on the market, other financial players would question the move to secure its resources openly.
“The central bank is working around to build up reserves to ensure that external obligations are met as and when they are due because if we default, it creates other pressures. So by allowing the exchange rate to adjust is in itself a mechanism in which you would try to insulate the economy from some of these pressures,” he said.
Dr Kalyalya said for Zambia to get more dollars and stabilise the exchange rate, it will need to export more services, obtain external loans or grants.
He said the country needs to get concessional loans from multilateral institutions as well as rely on foreign direct investment to help stabilise the exchange rate.
Dr Kalyalya said the capital flows for many of the emerging and developing economies have been affected by the slow growth of the global economy.
He reiterated his call for diversification from copper, which is the country’s foreign exchange earner, to agriculture and other factors.
He said Zambia has enough arable land, which can be used for investment into agriculture and not rely on copper.