Mr Simumba said since all the key economic fundamentals are weak, the Kwacha can only appreciate by manipulation which he said is not sustainable.
He observed that the euphoria surrounding the Kwacha appreciation is very premature and will come back and bite many pundits.
Mr Simumba said Minister of Finance Alexander Chikwanda was honest enough to state that the Kwacha appreciation is driven by monetary policy and has nothing to do with any productivity gain or increase in exports.
He said the key ingredients to the determination of an exchange rate such as the interest rates or economic growth, Inflation, Balance of payment or trade balance, capital flow and public debt including the budget deficit are all undesirable for Zambia.
“Economics is about causation- cause and effect. What they have done is to remove kwacha from circulation. when you look at the dollar as a product it is bought by somebody possessing kwacha. Too little kwacha chasing the dollar brings about the drop in the price of the dollar or exchange rate,” Mr Simumba said.
“And when this does not translate in the improvement of the well being of an average person, it will bring frustration. Prices have a tendency to stabilize and not to reduce. Moreover, the interest rates are too high bringing about the cost push inflation which will again act as a hidden tax for the poor. So this monetary policy is nowhere near pro poor it is actually pro foreigners and speculators.”
He said a few weeks of appreciation is not a miracle adding that this is a normal part of the cyclical nature of forex markets.
Mr Simumba said there has been a huge offloading of dollars by the mining and other multinational companies to fulfil their end of financial year tax obligations.
He said this coupled with tight monetary policy of the Bank of Zambia has sucked all the kwacha out of the system.
“The price we pay for this lopsided policy is higher interest rates and inflation which affects mainly the poor. In order for the appreciation to be sustainable over a period of at least six months we need to see further fiscal consolidation and some real actions to consolidate Government spending,” he stated.
He said this is a temporary appreciation that will only benefit speculators and foreign buyers of Government Treasury bills.
“Those with a good memory will recall a similar situation around 1993/1994 when we had a similar rapid appreciation which saw foreign buyers of T bills make huge profits from the exchange rate differential between when they changed their US dollar at high rate and after receiving their kwacha profit bought dollars at lower rate.,” he said.
He said that many experts including the World Bank and IMF have analysed this appreciation wrongly adding that it is unfortunate that the country has too many professionals that do not understand the reality on the ground.
“Many of these so called experts have never run a business in their life and have no understanding of the impact of Government policy on business. History always has a way of being repeated!”
He added, “There is a huge backlog in payments to contractors who are mainly Chinese and who will externalise their money as soon as they receive it. More importantly, Government is spending 100’s of millions of dollars on power imports and subsidies. Added to this are the debt repayments which are now estimated at over US$200 million per annum.”
“Significantly, there has been huge decline in economic output which means more job losses and reduced tax collection by Government. Whichever Government comes in after August 11 it will face a mammoth task of getting this economy back to stability similar to the struggle of the 90’s to unbundle the debt accumulated by the UNIP Government.”
Mr Simumba has since urged all businesses to tighten their belts and get ready for a rough second quarter of 2016.
“We should all be looking at our spending and change our ways,” he said.