Standard Bank trading in Zambia as Stanbic Bank says the Kwacha will continue depreciating in the short term as inward financial flows dry ahead of the August elections.
In a note to investors, Stanbic Bank says the US dollar and the Zambian Kwacha which was trading just shy of the 11.0 level in the fourth week of Jun from 10.4 a month earlier will be under more pressure as the country heads to the elections.
It said while the local press has hinted that the authorities may reintroduce regulatory controls to help support the currency, the bank believes that in the absence of improving fundamentals, regulatory changes may in fact prove negative for the Kwacha.
“We expect upside pressure on USD/ZMW to persist on a multi-month basis. In the absence of strong left hand side flows, strong import demand and relatively loose domestic liquidity conditions, we have seen the kwacha depreciate against the USD since Apr,” it said.
“Even the usual liquidation of FX by corporates to fund tax payments in the week ended 14 Jun did not provide much support for ZMW. Support for ZMW in the period Dec 15 to Apr 16 was largely accomplished through the Bank of Zambia’s (BOZ) tight monetary policy stance, sporadic copper-related FX inflows and a slowdown in corporate activity.”
On the trade front, Stanbic Bank says total imports were also subdued in the period Jan –Apr, providing some support for the ZMW.
“According to Zamstats, imports stood at just USD2.31bn in Jan-Apr 2016 while exports were USD2.08bn, allowing for a narrower trade deficit. In any event with Gross foreign reserves at just USD2.6bn at the end of Mar 16 (4.0 m of import cover) and import demand likely to increase going forward on the back of improved credit conditions, we do not believe that the authorities are able to aggressively support the currency ahead of political elections in August.”
The Bank said a formal IMF programme is unlikely to be clinched just before the elections, and the possibility of a run-off means that there could be even further delays.
“However, the IMF has indicated that it is in discussions with the Zambian authorities “to lay the groundwork for rapid action toward a Fund program following the Aug elections.” Arguably, an improvement in the external sector through a rebound in commodity prices or the authorities’ commitment to a funded IMF programme could also see a meaningful change in sentiment toward Zambia, thus supporting the Kwacha.”
It said an IMF programme would likely advocate import compression and engineer fiscal consolidation, thus supporting the Kwacha.
With Lungu spending money like confetti on election campaigns, fiscal consolidation will be off the mark. IMF should tell Lungu that an IMF led financial programme will be subject to the upcoming election being declared free,fair and credible.Lungu cannot hope to steal the vote and immediately access IMF financing. The IFIs and Donor Agencies should restrain Lungu in his election rigging efforts. IMF has made a mistake in giving Lungu the impression that money will be made avalaible to him irrespective of the outcome of these elections. The Fund has a duty to Zambians to make it clear to Lungu that money will not be made available to Zambia if elections are not rigged and disputed.
This is the price we are paying for letting free spending and visionless drunkard.its very dificult to lead oneself what more the 14 million zambians.may God please give us a resonable leader and focused team to run the affairs of the state not the status quo ante,Amen
If Lungu has Financial Advisers at all they should tell him that the Zambian economy is in a mess and will require serious fixing. To do this Zambia will require balance of payments support as well as FDI. Lungu is under a mistaken impression that on 12th August 2016 after cooking election results he can quickly swear himself as President and thereafter IMF will quickly give him money to fix the economy. It doesn’t work like that. Its in the interest of Zambia to have the coming elections declared free,fair and credible and a legitimate govt is elected. IMF and the International Financial Community should remind Lungu of this. Without foreign financing it will be very difficult to fix the broken economy.
May The Lord Help Zambia
The Kwacha will definitely go thru the roof if Lungu succeeds in rigging this election and the election is declared not free,fair and credible. Without a legitimate govt in Lusaka and a foreign bailout, the Zambian economy will continue on a free fall and life is going to be unbearable for all of us. With Lungu obsessed with political power rather than the economy and determined to rig these upcoming elections ,the Zambian economy will implode. The fact is Lungu can rig the election but cannot rig the economy.We hope the will of Zambians will be respected and may the best candidate win. Good luck to all!
Kwacha Yapena.
Kwacha nagu ifike K100 to 1$, ECL will win
We know that it hh in culluison with SA banks to syphon more dollar from ZM to ZA. But we are not worried cos we now know why we have been poor. Sata told us never to trust rich people.
It is game over hh na chidumbo
Ichibwa.mba
SUCH MATTERS NEED TO WORRY ALL OF US COZ THEY HAVE A DIRECT BEARING ON OUR LIVES REGARDLESS OF WHICH POLITICAL PARTY ONE BELONGS TO.
i found 100 kwacha notes being used as toilet paper (shinda paper) at a roadside bar in Kapiri-mposhi, last time i visited that god forsaken country
Africa would be well served by leaving the imf alone. Subsidies on staple food such and mealie meal are very necessary to a poor country. But to the imf every subsidy is bad. Besides debt is never a good thing anyway.
I do not why you don’t see it, but I see it anyway. The lear77ning point from this analysis is that HH should go back to university to.learn economics. Looking at his shallow comments on Zambia’s economy, I suggest that he starts in second year so that he can build a good background and some self confidence. After graduation he can restart his career in politics.