Thursday, February 29, 2024

Kwacha’s instability and continued depreciation can be restrained

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Social Economist and marketing expert Kelvin Chisanga says the Kwacha’s instability and continued depreciation against major world currencies such as the US Dollar can be restrained by increased exports.

According to Absa Bank daily indicative rates, the Kwacha was on Tuesday buying the US Dollar at 18.3087 and selling at 18.6598.

Almost around the same period last month, the Kwacha was buying the US Dollar at 16.9709 and selling at 17.2963

The local currency started going down with a significant margin around 14th January when trading between 16.9709 and 17.2963 against the US dollar

In a written statement, Mr. Chisanga said trade imbalance is one of the major reasons the Kwacha is losing value as Zambia continues to import more than it exports.

He said there is a need to come up with a deliberate policy aimed at boosting exports away from the traditional copper and its by-products.

“The Kwacha’s challenging performances can be moderated by a stronger export-driven policy. Zambia should aspire to formulate an export-led facility growth policy to help on the balance of trade especially targeting strongly on commodities outside copper, if we are to drive a sound diversification in policies, we should firmly centre our focus on promoting non-traditional export especially if we are to put all our arsenals on agricultural products, we can drastically increase the export base to facilitate conducive macroeconomic conditions for this country,” Mr. Chisanga said.

“The proposed policy formula can ultimately stimulate an increase in the domestic production sectors by widening local manufacturing activities with aims to improve on the export market, thereby creating an economic multiplier effect which will eventually push through some good employment numbers and can actually also increase values on the gross domestic product (GDP) though that cannot be taken as an immediate cause but with time it will look a positive undertaking,” he said.

“The main idea behind the IMF pushing most developing economies to embrace their prescription is that countries should aim to maintain a relatively stable or low exchange rate which helps such targets (countries) to build up on foreign reserves, and this can equally serve as a cushion against such futuristic financial shocks,” he said.

Mr. Chisanga observed that the depreciation of the Kwacha is further pushing the inflation rate up.

“Kwacha’s current challenges are mainly due to trade differences that are existing between import and export, at the moment the country is seen importing more volumes in terms of numbers of goods compared to the volumes of export moving out of our borders to regional markets. This is the bad case which will always promote inflation to shoot up from the target range especially if it is left unchecked by various stakeholders.”

“However, we can improve the economy by restoring balance of payment equilibrium especially through an increase in the value of our exports, import reduction by using the local industrialization policy to make certain controls, and impose a moderate custom duty for undesirable goods and services in the country through our revenue offices which may be a bit difficult to implement with a poor political will, looking at a slow-pace of some economic activities being experienced,” he said.

Mr. Chisanga said the rise in demand for foreign exchange always exceeds its supply thereby causing the Kwacha to depreciate.

“Unfortunately, we are importing mostly finished products with the scarce foreign exchange at slightly higher cost at present. This means that imports and exports are sinking the power of Kwacha, subjecting it to some ‘pressure’ since available foreign exchange is always less than what is required to make on our numerous consumable imports. The export base is so narrow that it can’t be equivalent to the import bill.”

He concluded: “Technically speaking, the rise in demand for foreign exchange always exceeds its supply, and by nature the law of demand and supply, the Kwacha must fall, a case at the moment which can be looked upon with a strong and deep sense of change in policy to steer economic growth and bring about sustainable means.”

18 COMMENTS

  1. Someone with a few million dollars offloaded their money and the Kwacha picked. Alas those millions were not enough to quench our insatiable appetite for the dollar. 14 hours came and are gone. Let the Kwacha find its proper age ie 23 Kwacha per dollar.

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  2. What this country needs is a comprehensive theory of change at macro level that links investments in targeted entire high value chains in agriculture, starting with enhanced productivity at up stream level, to Agro-processing in mid stream and efficient distribution channels downstream. Identify your goals, tackle constraints (say high nomnal intrest rates in financial services sector for credit provision), infrastructure, markets, etc.

  3. Bally the rate of dollar has started rising and
    Shortly we will be back at K23 .We will be back in PF time.Show Zambians UPND is in
    Control and performing.

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  4. What happened to the Ablakada blakada……I am sworn in the morning and the Kwacha will be K5 to a Dollar by 14hrs.

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  5. There is significant dollar inflation as well as euro inflation as central banks have been printing their way out of the crisis since 2008. The pandemic has only increased this further as central banks’ printers has been buzzing away even harder. Im wondering if this then has a knock on effect on the kwacha: More dollars needed for the imported goods, more kwacha needed to chase after those dollars, forex even more scarce, more inflation.

  6. I think 15 to 18 kwacha to the dollar is where we will be as we near the first term of UPND………

    I think that is the right place…….

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  7. Please stop being hypocritical. Where you not saying the depreciation of the kwacha is because of PF policies. Isn’t 6 months in power enough for UPND to implement policies to stop depreciation. 10hrs sworn 14hrs kwacha appreciates. 4 hrs has now become 6 months. That’s in life criticise with honesty because as far as we have been told, in Zambia the performance of Kwacha is not based on economic forces but by the government in power. Stop wasting our time with articles and just ask HH whether his watch stopped working. When is his 14hrs?

  8. Investors and the world community are realising that HH is just another conman.

    Mark my words.

    We are in big trouble as a country.

  9. Think it has nothing to do with who is in government, there is a systematic debt crisis and if you put too one side the copper exports which are all traded in USD which is to the governments advantage you are left with very minor export market , agri business is a clear point in case no meat or livestock exports and control on all grains and maze markets .
    There is very little added value products available to export and tourism is traded in dollars and the profits and currency are held overseas by resort and lodge owners even in country NGO’S operate in USD so in short you have two Zambia’s one of Kwacha and one of Dollars , also you now have the IMF with one hand on your steering wheel and they are very clear in what direction they want Zambia to go !!!!!!!!!!
    The kwacha…

  10. To manage the kwacha you must develop the economy because it’s flactuations is in parity to global conditions and so more to the emerging markets it’s reacting to events in commodity prices political including it’s derived demand by companies and others within these markets reacting to the pricing dynamics of demand and supply including artificial hedging tactics by market players it’s simple to effect currency management and register gains overnight

  11. Just be happy that in this new year 2022 it’s still below K20. Had PF won we would have started the year with K35 to 1usd.

  12. #10 Mutty So Mr Hakainde didn’t have those factors in mind as he promised us the instant cure for our ailing Kwacha? What an economist?

  13. Continuously depreciating Kwacha is because of WEAK financial policies. And the REAL inflation is 20.1%. That needs a strong hand on the financial tiller, not halfhearted weak blah blah blah. Very disappointing Mr President

  14. We agreed with HH on political violence during PF though it has continued under UPND. We agreed on corruption though 6 months in office UPND has a $50 million fertilizer scandal and HH has acknowledged corruption in his government except he has accused PF to be the one training his ministers how to steal national resources. But the economics to improve the currency over 100% in 4 hrs is what many sincere Zambians never agreed with him and it has shown that he either didn’t know what he was talking about or was just lying.

  15. #Deja Vu
    Well lets see what happens over the next 6 too 8 weeks but i fear it will hit 22ZMW too 1 USD asit was in June 2021 before the elections and the IMF deal .

  16. We have heard this song since Kaunda’s time: Currency will gain by increased exports. But we never plot any strategies for this. We keep relying on copper exports

  17. “We agreed on corruption though 6 months in office UPND has a $50 million fertilizer scandal” HaHaHa! Take note of that – Tuzagwila Mwami. Whosoever digs a pit, he himself will fell in it.

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