New Kwacha Notes

The Economic Association of Zambia has called on authorities to relook the balance of payment monitoring mechanism.The Association has observed lapses in the current monitoring system and noted the risk of unaccounted for flows,for example one-legged foreign transactions or mismatches which may negatively impact the foreign exchange flows and accurate taxation capture.

The Association also called on authorities to revisit the Statutory Instrument No.55 attempted a few years back which was hastily implemented.The EAZ also said allowing for price quotes in foreign currency in the name of the free market economy has cost the Kwacha its sovereign value.

The Association said it looks forward to a time when SWIFT, Visa, Master Card, Western Union and other payment gateways will integrate into the regulators systems to aid effective monitoring. The success of this monitoring mechanism offers a breakthrough in curbing the purported illicit capital flight out of Africa and the unpaid and underpaid taxes.

Below is the full press release

ENHANCEMENT OF BALANCE OF PAYMENT MONITORING

In light of the recent currency weakening trajectory which has seen the Kwacha slide to levels of K13 representing an 8.6% depreciation YTD, the Economics Association of Zambia (EAZ) wishes to advise the Zambian authorities to relook the balance of payment monitoring mechanism. The Association has observed that timely and accurate BOP data is vital to inform and advise authorities accordingly.

If firms are currently front loading imports due to uncertainty in the exchange rate developments, only BOP monitoring can shed light on such trends. It is important that the banking sector (money side) is linked to the tax administration (goods side). If a firm, through its bank, sends foreign exchange abroad for importation of goods, the information should immediately be shared with relevant stakeholders like ZRA, BOZ and CSO. Timely and accurate information assists authorities to appropriately respond to developments in the economy.

The Association has observed lapses in the current monitoring system and noted the risk of unaccounted for flows, i.e. one-legged foreign transactions or mismatches which may negatively impact the foreign exchange flows and accurate taxation capture. Further, BOP monitoring involves private external debt monitoring. It is important to ascertain foreign exchange outflows and the stock and structure of private external debt. Balance of Payments (BOP) position is currently under pressure because the current monitoring mechanism is lagged and based on the goods side of the economy, without balancing this with the money side of the economy. This is not sustainable and not thorough enough to account for foreign exchange flows. The Association appreciates that Zambia is a liberalised economy but advises that some form of monitoring in areas such as foreign currency cash importation is needed to balance such flows.

The Association also echoes the need for the authorities to revisit the Statutory Instrument No.55 attempted a few years back which was hastily implemented. Further, the de – dollarization regulation is a tool which the Association believes was introduced with good intentions. Allowing for price quotes in foreign currency in the name of the free market economy has cost the Kwacha its sovereign value.

Most neighbouring jurisdictions will not allow for entrants to use any currency but the local currency. This has helped preserve the value of the local units. The Association acknowledges that light forms of exchange controls have been misunderstood by many as stifling flows into a liberalised framework. However, the EAZ cites most jurisdictions that have some form of restrictions to preserve value and confidence in local currencies.

The Association is of the view that the authorities should implement electronic forms of BOP monitoring which should strive to reconcile with transactions that the revenue authority sees in the market. The automated process has the benefit of minimising manual interventions which most commercial banks grappled with a few years back during SI.55 implementation.

It is about a dry point of construction that there exists many leakages in the economy and as such the Association believes that automation does help to curb the information mismatches/asymmetries between the banks and the revenue authority. These mismatches characterised the genesis of VAT refund impasse a few years ago. The Association recommends that the authorities consider having all players and conduits to the flow of BOP transactions plug into both the Banking system and Zambia Revenue Authority for seamless reconciliation.

The Association looks forward to a time when SWIFT, Visa, Master Card, Western Union and other payment gateways will integrate into the regulators systems to aid effective monitoring.

The success of this monitoring mechanism offers a breakthrough in curbing the purported illicit capital flight out of Africa and the unpaid and underpaid taxes.

Issued by:

Economics Association of Zambia

Mutisunge Zulu
National Secretary

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15 COMMENTS

    • Reality is coming to bite us. This pro PF EAZ doesn’t even have answers to the depreciation of our Kwacha. Why exist when you can’t raise real issues the country is facing—too much debt, govt incompetence, corruption, lawlessness, public theft, abuse of power? Etc. all these put too much pressure on the Kwacha. No lender wants to do business with a reckless govt.

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    • The depreciation of the Kwacha is explainable by five key factors;
      1. Recent rumored (or real) printing of money.
      2. Ambivalence in sales/VAT tax policy reviews
      3. Loss of confidence in the ECL government to manage the economic affairs of the country.
      4. Poor agricultural yield on account of poor rainfall
      5. High debt servicing levels
      Let those with ears listen! Lethargic and visionless ECL MUST go! It is now time to look for a serious leader to put our country’s affairs on an upward development trajectory.

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    • @ Zambia First, for how should we use the excuse of poor rainfall when we should be talking about failed Agriculture policy?

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  1. The EAZ has lost credibility and relevance over the last few years! Just advise government on what steps to take to increase supply of the dollar on the market. The sliding of the Kwacha is largely due to the unmatched demand by supply due to increased import volumes and speculation. No one wants to hold on to the Kwacha while everyone wants to hold the dollar in anticipation of a weaker Kwacha tomorrow! The EAZ should not behave like a cadre, but rather should be frank by calling a spade a spade!

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  2. Where is that one brain cell fool they call Habazoka,or have you also taken advantage of his absence to issue this like PF?

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  3. Dununa Reverse indeed…….Is this what they meant when they were dancing to the song?

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  4. The Association has observed lapses in the current monitoring system and noted the risk of unaccounted for flows,for example one-legged foreign transactions or mismatches which may negatively impact the foreign exchange flows and accurate taxation capture.

    Computer software has eliminated one legged transactions. This Association is going round in circles by giving fake explanations.The solution to foreign exchange is to grow the economy and increase exports.

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    • You are very right! This EAZ is a danger and embarrassment unto itself! Instead of being crystal clear on what tangible steps government needs to take to forestall economic stability, growth and development, the association is trying to be relevant by advising government to take precautionary measures to “establish the ‘when’ and NOT THE WHY” we do not have the much needed dollar.

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  5. Monitoring currency inflows or outflows will not stop the depreciation of the kwacha. In fact it will even increase as more companies will now prefer to keep their profits out of the country which they are legally entitled to do instead of keeping it here due to stringent conditions.

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  6. Misinformation and peddling of lies are what has weakened the kwacha to the dollar. Most investors are staying outside the ring and hedging against the kwacha resulting in hoarding and externalisation of the dollar. Since debt service obligations have stayed the same, and so have forex earnings and imports, it can’t be these factors.

    The solution is to let the exchange rate play out according to the speculators’ wishes. Sooner than later, they will get hurt and come to their senses since a weaker kwacha in a competitive economy diminishes their dollar returns.

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  7. ECZ I suspect are trying sneek in controls. There is no need to panic and in the process wreck the whole economy because of what appears to be a temporary udjustment to the exchange rate.

    The Central bank should stand furm and resist solutions that are not sustainable. They are the experts and we should listen the them.

    Too many voices in the wilderness will just make matters worse.

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  8. Many so called investor come to this country with pledges of millions of dollars in various sectors of the economy. They then externalise million of dollars in profits from some of these illicit undertakings. Do we as a country have a fool proof way of ascertaining the exact quanta of funds brought in either as cash or physical goods used as equipment or raw materials in the production process. I feel that we are being short changed if we a no way of checking these inflows of FDIs. They could be being ng in little at taking out more thus creating the Imbalances which are contributing to the weakening local currency. Someone please shed some light on this?

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