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Alba Iulia
Thursday, July 9, 2020

Zambia’s Tanking Kwacha May Stay Vulnerable Even After Rate Hike

Economy Zambia’s Tanking Kwacha May Stay Vulnerable Even After Rate Hike

Zambia may be in no mood to tolerate much more currency depreciation, but it will be hard-pressed to prevent it.The central bank increased its overnight lending rate by 10 percentage points on Friday to a record high of 28%. The goal was to instill “stability in the market and to rein in inflationary pressures,” it said.

The kwacha has depreciated 4.7% this month against the dollar, almost as much as Chile’s peso, the world’s worst performer, leaving it 15% weaker this year. Inflation, meanwhile, accelerated to a three-year-high of 10.7% last month.“The central bank is looking to tighten kwacha liquidity, perhaps to quell demand for foreign exchange,” said Phumelele Mbiyo, a senior economist at Standard Bank Group Ltd. in Johannesburg.

The Monetary Policy Committee will also increase the copper producer’s base rate by 100 basis points to 11.25% on Wednesday, Mbiyo predicted.

There’s no guarantee the monetary tightening will work. Markets have long fretted about Zambia’s external debts, which the kwacha’s decline will only make more expensive to service.

Zambia’s dollar-bond yields average 19.6%, according to Bloomberg Barclays Indexes. That’s far into distressed territory, with only Argentina and Lebanon in a worse position.

The Southern African nation has $3 billion of Eurobonds outstanding. Its ratio of debt to gross domestic product will rise to 92% by the end of 2019, triple the figure from 2015, according to the International Monetary Fund.

The situation is exacerbated by the government’s struggle to rein in spending and a severe drought, which is hammering agricultural output and hydropower generation.

“The Bank of Zambia is in a challenging position,” Mbiyo said. “Most of the pressures facing the economy are either due to exogenous shocks because of the drought conditions earlier in the year or due to fiscal-policy conduct.”

Bloomberg

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22 COMMENTS

  1. These stuff are difficult to comprehend, and those PFuuus don’t even understand a percentage.
    These stuff are for HH and Sinkamba.

    • Hiking the interest rate is like giving Panadol for multiple organ failure. The patient will be relieved for 5 minutes, but will invariably succumb to the injuries.

      The real challenge is a visionless leadership that is addicted to loans. Solution is simple. Amputate the offending organ and save the patient.

    • “Its ratio of debt to gross domestic product will rise to 92% by the end of 2019”

      As a rule, the higher a country’s debt-to-GDP ratio climbs, the higher its risk of default becomes. … A study by the World Bank found that countries whose debt-to-GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns in economic growth.
      Investopedia.com

    • LT this article appeared yesterday and you attributed it to Standard Bank (Stanbic). Now you show that it is from Bloomberg which sounds true to me because of the style of reporting. ARE WE SAF!?

  2. “Its ratio of debt to gross domestic product will rise to 92% by the end of 2019,triple the figure from 2015,according to IMF.”

    Just how do you allow debt levels to spiral like this? It seems we never learnt any thing from HIPC caused by UNIP.How can such debt levels spur economic development?

    • If someone came to your kitchen and he stole your sausages and chicken, please NEVER bring him to your bedroom! The PRIVATISATION THIEF is BAD NEWS for Zambia.

    • If someone went stole from a widow, never let that anywhere near State House…oh sorry. we have been sleeping and that person is in charge.

    • That’s PFoools for you or rather PF 1doits for you, very dull and they have really destroyed everything, wonder if the country will ever recover from such doom, never seen before. It is easy to destroy than it is to build… I hope as a people Zambians have leant something from putting dander heads and 1doits in office, in my world Lungu wont qualify to fill toilet tissue in my offices, I know for sure the 1doit will fail the job

  3. “The Bank of Zambia is in a challenging position,” Mbiyo said. “Most of the pressures facing the economy are either due to exogenous shocks because of the drought conditions earlier in the year or due to fiscal-policy conduct.”

    Nothing to do with us, gov. Oh by the way, we’re the ones who pushed the Eurobond option, which has now destroyed the kwacha. We corruptly suggested that it wasn’t a good idea to tax the mines that our bosses own, and that it was better for the Zambian taxpayer to take on debt, instead of collect taxes on their own copper.

  4. What do you do when you are on an over speeding minibus (Rapid debt contraction) and you have half the passengers clapping for the drive while the other passengers plead with the minibus driver to observe speed limits and road safety? All you need is a tyre burst or a stray animal (Debt defaults) on the road to realize the consequences. Then Asset grabbing becomes inevitable. It may not be the fault of the driver sometimes. The driver may have cataracts that may interfere with proper vision or the driver may be partially deaf. It is therefore the fault of those cheering the driver on even when doing unsafe acts! But from the look of things, the bridge has been washed away ahead and at the rate we are going, our minibus may fly over the edge!

  5. I like the economic theories especially on debt to GDP because sometimes they picture it as though all is lost and you do not have real options to realise those returns from the Investments made from those Bonds and sovereign longs and guarantees These theories sometimes will assert the debt overhang hypothesis in such a way that all is confirmed to be lost and failed That ‘”that public debt servicing depresses economic growth via a multiplier accelerator effect through various mechanisms: (1) it drives up domestic interest rates, thereby increasing the cost of borrowing, which then crowds out private sector investment; (2) it causes a net flow outwards of domestic resources (comprising of external grants, aid and…

  6. foreign exchange resources) in the form of foreign public debt repayments; (3) it presents future tax uncertainty and a deterioration in domestic policies, which directly impact on real returns on investment; (4) it increases government participation in domestic capital and money markets, which can then lead to credit rationing; and (5) it increases the government’s appetite to borrow so as to service its debts, among other reasons”

  7. The Good part is that you have invested and accumulated assets towards those macro indicators that you are working hard to address to sustainability Sometimes also GRZ can crowd in and moderate the economy In as much as i agree with certain policy, transmission mechanisms has been lagging to effect favorable rates to effect those movements on assets and liabilities(saving and spending withing the economy Certain activities are simply counter to those policy reactions and more favorable policy direcions must be made to ensure impact

    There is stil life and hope very big hope and expectation in the Zambian economy unlike in Turkey Argentina or Brazil itself

  8. Fitch affirms Brazil at ‘BB-‘; outlook
    stable
    • Fitch says Brazil’s rating are constrained
    by high & rising government indebtedness, rigid
    fiscal structure, weak economic growth potential
    • Fitch says Brazil’s macroeconomic
    stability is supported by low in

  9. This is where ba Thorn in the chakuti who is usually all over the place defending the incompetence of this useless government goes zeeee

  10. If you see the high level meetings by Minister (IMF and Ambassadors ) you will see those concerns and explanations but then you need to see the time of the year,the inclination of markets and performance of major indexes and markets ,we at the tail end are simply cherry picking as we hope and work out the markets to re-correct those inverse prices in bonds we have seen on the charts with the DOW falling by more than 100% Our low yield currencies as people leave for holidays Companies engage in Treasury activities will come to this But not all conditions and situations are permanent markets and currencies to revert to mean positions over the long-term to reflect fundamentals…

  11. The Dow Jones Industrial Average was down 112.93 points, or 0.4% to close at 27,821.09. The S&P 500 slid 0.4% to 3,108.46 while the Nasdaq Composite dropped 0.5% to end the day at 8,526.73 Since you are dollars inclined you need to see also what is shaping the call on the Kwacha in the DXY index (dollar)

    But it could be better we constant recheck and management watching the markets and seeing the long-term view since not much can be put in to redress

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