Finance Minister Alexander Chikwanda has attributed the depreciation of the Kwacha to the strengthening of the US dollar against all currencies as the American economy has grown at a faster and higher pace than other advanced economies following the 2008 global financial crises.
The kwacha has since end 2013 depreciated by 24.3 percent against the US dollar while the Euro has depreciated by 20.5 percent, the Rand by 11.7 percent and the pound by 7.9 percent. Of course, Zambia being a commodity exporting economy is more affected than other economies.
In a ministerial statement to Parliament, Mr Chikwanda said the US economic strength is largely premised on quantitative easing, a sophisticated way of purchasing existing bond obligations and unleashing huge resources to create new commitments which triggers economic stimulation.
Mr Chikwanda said this includes cheaper mortgages that spur booms in housing construction, a process that can only be salutary for any economy.
‘Sir, on the domestic front, the major reason for the weakening of the Kwacha is the palpable demand/supply disequilibrium. In other words, the demand for dollars principally and other currencies exceeds supply. At the beginning of the year, the foreign exchange earnings inflows are slow because of the time lag effects in the realization of export earnings, while lower copper prices have further constrained supply conditions. In general, net monthly supply of foreign exchange in 2014 exceeded us$100 million. However, at the beginning of 2015 this fell to around us$85 million,’ he stated.
He said the hard currency earnings will improve as the fiscal year progresses, especially from the mining sector as volumes increase and copper prices continue to trend upwards as has been the case in the last week.
The Finance Minister said Government will continue to monitor the situation and will through the Central Bank take the necessary measures to forestall excesses in exchange rate movements.
‘Any intervention by the Bank of Zambia can only be, per force or of necessity, a measured response. The bank has to strike a delicate balance between preventing drastic slippages in the kwacha parity and preserving our reserves, which are not lavish. On the fiscal side, we will compliment the efforts of the bank by continuing our fiscal consolidation process that will assist in moderating demand conditions for foreign exchange.’
He said over the long-term horizon, increased export earnings will never be a matter of fiat adding that as a country, Zambia must just put its act together to increase and quicken activity in sectors such as agriculture, which have relatively shorter and bearable gestation periods.
‘The tourism sector has potential to contribute, but this will require reinforcing infrastructure and services in this sector. It cannot be a one-day wonder,’ he said.
Mr Chikwanda added, ‘Sir, exchange rates have a relation to the economic status of any country. In Zambia, the participation of our nationals in the economy, except for small-scale agriculture, is uncomfortably low. We import a lot of goods that can be produced locally. The absence of even scanty processing outfits is mind-boggling. This is a big challenge to our many entrepreneurs. Import substitution, when the volumes are adequate to ensure reasonable unit costs, is as good as exporting for purposes of foreign exchange.’
The Finance Minister said, ‘let us look at the Kwacha parity in a wider global context because we are not an island but an integral part of the wider global economy. The government will always be mindful of the possible injurious effects of a weakened national currency. A robust and diversified agricultural sector can generate export earnings to furnish the country with enough and reliable hard currency to permit assured kwacha stability. This is the only conceivable way forward for the longer-term.’
He said the nation should not to be unduly alarmed by movements in the exchange rates as this has the effect of inducing speculation, which in turn artificially sways the exchange rate away from fundamentals.
‘In a market economy such as ours, movements in the rate are the order of the day. It is not too long ago when we paid 70 ngwee (or k700 in un-rebased currency) for 1 South African rand. We can now buy a rand for less than 60 ngwee.’
I trust Kambwili
Thanks
Bb2014
That’s certainly right, even here in the world’s best economy (Canada), the currency is also weakening against the strengthening US dollar. One advice, though, Minister, is that lets invest the borrowed money in things that can repay the loans and not stadiums.
So what is your solution Chikwanda? Are you going to wait until the American economy to goes into recession again for you to act to stabilise the kwacha?
How come the British pound is gaining against the dollar amid American economic boom?
I have heard such rhetoric from Mugabe ‘s men before.
When you have failed bwana, move over quickly and let the people who know how to run thing take over.
With such political oppression being promoted by Lungu, do you expect the Kwacha to gain.
The kwacha will dive just like the Zim dollar by 2016 because of the huge political risk Lungu is causing to the economy.
Investors have started taking the dollar out rapidly owing to Lungu ‘s intolerance of opposing views.
Investors are sensing dictatorship thats why the Kwach is falling…
Just useless ! Keep on borrowing money from Europe . That’s the only thing you know BA PF . What was the point of getting independence if you can look after your our people . Fix the economy not changing names of towns to villages .
Uku ekusabaila ba minister. What next, you will blame the fall of kwacha on the citizens eating good meals….
Frank Bwalya s analysis was even better, just resign mambala.Even British economy has continued to grow.
Liars! Pathetic excuses for poor policies and lack of coordination. You need to own the failures and not to put your sh!t on the hard working Americans.
What an explanation? It’s tantamount to blaming your poverty on your rich neighbor who is managing his/her household better. Being on the same globe as USA shouldn’t make our kwacha depreciate. USA worked her way out of the 2007 depression. What’s your plan?
All yu Zambians are just too talkative. Yu should be innovative and creative. All u do is copy and do the same thing yo neighbour is doing. When yo friend goes to Dar and the business appears lucrative, everyone goes to Dar re salaam, when one goes to Jo’burg everyone is going to Jo’burg, Dubai China etc. We are a market economy- buying and selling. Unless we become producers and sellers, our economy will always struggle.
The Govt has created an enabling environment, policies and all and ZDA, PPP but all we know is buying from abroad and selling.
Even those with mone can’t set up factories and industries but buy Scnia buses, trucks etc.
We need to develop the Industry and its not the Govt to do this it us even by share holding etc.
If yu will sit waiting for the Govt to do…
He is not different from Chikwanda .
Brilliant Finance Minister
He must be from Harvard?
Good explanation….Tantamount to “an act of God”
……………….Still, cruel people call him Dino Sari???
Whatever that title is?
The Ministry of Commerce Trade and Industry todate has no convincing practical policy to forge the industrial sector ahead.
He is the star in ‘The Emperor’s New Clothes’. Use meaningless jargon and look intelligent!
That does not Make sense!!! Which economic theory is implying and I guess is lying to people who can read nor write (sorry to say this but is a fact).
The man is old and he should retire, Zambia is 50 years past Independence and still being ruled using UNIP Style???
What a shame, Wake UP ZAMBIANS
What a generic statement. The reason we have government is to provide solutions and not merely describe status quo. President Chikwanda is reproducing comments we have been making on these blogs for months. Incidentally president Chikwanda could you explain how the Kwacha has been trending down even against the Zim dollar. Howlong have we been asking government to pay closer attention to tourism and agricultural sectors? Speaking of quantitative easing, the argument can be made that this should actually help us. Due to QE by the fed in USA a lot of investors are looking for other investment vehicles this is when we should be seaching and offering an investment friendly environment. As always you will tell us it the “MODALITIES”. What a finance minister or president. Lol
A good government should be thinking of how to have a boom in the economy and not to find excuses for a useless currency or blame countries that are doing well. Please government and every citizen, let’s all put on our thinking caps and do positive things and not waste time pursuing political opponents and doing useless things
I stated this weeks ago that the US dollar is shaking all major and little currencies on the planet. Obama’s strengthening of the US economy is showing it great fruits for America.
Viva President Nawakwi, greatest finance minister.
Which Nawakwi? The minister who helped FTJ siphon millions for maize that never was from Carlington and arms with Katumbi and Katoto? May be mention Magande and Situmbeko who left billions of dollars in reserve.
Useless Minister. You are sleeping while America is working hard. We have copper, uranium among other minerals in Zambia. No wonder that is why cant develop. Chikwanda should know that we are given equal opportunities but what matters in life is how we take advantage of the opportunities availed to us. Let us stop borrowing since we cant even see dividends apart from harassing opposition leaders
Chikwanda,s logic is like that of a medical doctor who says the petient is sick because they have high body temperature. Instead of trying to find out why the temp is high in the first place. Why is demand for dollars outstripping supply when we export copper every day. We pay this old lunatic a salary that he prevents that from happening.
What an old fool he is.
The US economy in the last quarter 2014 grew by 2.2 EAR down by 0.4% against projected 2.6%.The fiat money is only effective if the velocity and multipliers are correct supporting those shorterm GDP growth towards that potentials as can be seen from the consumer spending amidst the economic pressures presented by china’s drive for commodities and financial strategies in Interest downgrade in reducing the effect and pressure on Financing, countering deflationary pressure and concerns against weak manufacturing sector in the US
There are underlying signs that growth will pick up in 2015 but like one blogger has said what is the take for Zambia in these economics of China ,Brazil Greece Germany and US
ABC has been very technical on this one but the outlook should be reduced to the region and finally as it affects Zambia and the implications on the gains and deficits on Zambia Accounts
Its well followed but it should be explained to a level to be dissected and understood to the local level and effects in those trade flows seen as impacting on Zambia and hence reflected in the kwacha
There is pressure on the American economy as seen from the china fend off that potentially should be watched especially that we are principally dollar – kwacha driven as opposed to the RMB-kwacha given our commodity copper
Trading strategies must be upped avoiding being carried by the wind of the…
reserve currencies as currency wars continue to be evidenced in the way the currencies are being followed
Its also correct as followed that the world outlook in economies has been down graded and economies with sufficient surpluses in reserves will continue to post marginal GDP growth and come out the best with financial reengineering in the most flexible and quick reaction to counter those cyclical pressures and ensure no stagnation or some un-harmful effect of inflationary or deflationary pressures arising from economies we interact and par ourselves against
The outlook may not be very good but its workable for the future for Zambia 2015-2017 It requires careful flexing of…
monetary and fiscal policies Like seen with currency surplus nations in reserve currencies, training and running a National Treasury management ,managing those currency exposures as Volatility Picks Up will also be helpful for our kwacha which has like many know has got not its own feet to lead and act to lead to be followed except like the minister has rightly said in parity to always for the future to come unlike the china fighting its way from all cylinders to lead the pack of world currencies maximising its sectoral performance on the world stage
Chikwanda always gets it wrong, no surprises, but when is he going to resign to save the country from this stagnation?
Fossil Chikwanda is taking us nowhere with his outdated chikawandanomics….this is clear evidence of a stubborn old man who will not admit any fault….one would be excused for thinking that he was just appointed in that office yesterday..he can use all the jargon in the finance like our incoherent colleague Jonathanmhango Financial Analyst but the fact remains he has been that office since 2011 and has lamentably failed to correct the situation.
Chikwanda falling oil prices are also an important part of the recent phenomenon of resurging economic growth in the U.S.. Much like how the increase in the price of oil in the 1970’s played which was “a negative supply shock” effectively creating unemployment & declining output,
this recent decline in the price of oil is behind a “positive supply shock” in part responsible for the recent boost in economic activity and decline in unemployment ie:: Lower Prices, Higher Output.
Fossil Chikwanda needs to put to pasture he is likened to a carpenter who will blame everything but himself…the coward president can easily headhunt the best in the field and appoint but is powerless.
upward trend in copper prices ???….only yesterday I read that copper prices had fallen again for the 5th row in a week……….maybe the problem is investors no longer want to invest due to policies…especially the mines……
Chikwanda, stop pointing fingers at scapegoats and point them where the truth lies.
At a useless PF Government and an incompetent old fossil of a Minister of Finance!
YOU HAVE FAILED! Admit it – and get out – so someone else can do the job properly.
The Minister should have foreseen this and taken measures to minimise the impact of what he is talking about. Don’t we pay him to be proactive and not reactive? If he was proactive, he would have known better than to rock the country’s economy with his clueless mineral royalties and VAT at a time when the country is at its weakest. Unfortunately he did not and the result is that there are now too many economic and political variables that he is now lost in the jungle of the world economic jargon with no solution in sight. I am not saying the concept of mineral royalties is bad, what I am saying is that I doubt that the minister and his economic advisors understood what they were doing or carried out enough research.
This team has introduced and reversed more SIs and economic policies than anyone before them, leaving behind a trail of destruction and leaving the economy vulnerable to (external) economic shocks no matter how small. Maybe it’s time H.E. ECL reviewed the performance of this economic team, even going by the above policy reversals alone. To restate a rather rude common phrase in a polite way, you cannot expect different results by applying the same theories that have failed before.
In other places in the world, teams that have failed the economy resign on their own, but I guess in our case we cannot even tell when we have failed and so we continue failing.
NB: No opposition (UPND) should misunderstand this to mean an endorsement of their policies, far from it! They are probably worse!
Am dumbfounded after reading the analysis of the finance minister on the free fall of the kwacha. Clearly, the minister does not inspire confidence in his team, later alone the country.To blame the doldrums in which our currency finds itself on the appreciation of the green back and state of the US economy, sends negative signals to players in the market and throws there foresight in planning their undertaking in to disarray.The fundamental principal espouses a clear economic policy, ie one that is predictable and is not subject to wanton changes when it befits the government, e.g SIs, tax obligations and tax matrix. Investor are now punishing this government by withholding dollars and putting to hold further investment which will bolster the economy.This minister sucks.
You need to learn to see and view the dollar strength as an opportunity to be exploited by using strategies like currency “’alpha’’ or that risk hedging strategy
Sitting back and watch is not a strategy and doing little to react is not the correct global strategy in currency management or being passive lagging to follow behind
The deliveries/trades of the USD confirms that the strength of the dollar in parity to others will continue and will persist for yrs. to come from now although like any currency with few minor losses but generally the strength of the dollar will continue and currencies like the kwacha will need to match up that characteristics and hence active
and hence active management is important and flexing other monitory and fiscal policies will be helpful addressing the above and managing a well-informed currency trader avoiding to pile and do carry trades tactics for the Zambian currency markets as boz offloads
Muleufwa Bane Chikwanda is right in the comments but I agree The local effect must be addressed to ensure a win win situation
Study the ministers of Finance in the region and you will see that we are not bad except structural issues that fits us in a jacket overcoming them is a long-term issue but in the mean time strategies that work will keep the wound to heal and mend to win
In the Case of Zambia you need to establish and exchange rate volatility dynamics equation ephazing those most economically destabilising It should be a model that will isolate the frequent variables in a dependent methodology ‘’If this happens then”’ clearly well-read in correlations reacting exchange rate stabilizing policies addressing trends in economies across the world
It’s easy to predict high frequency and recurring strains on the kwacha and those can be factored in easily from normal to cyclical isolated effects that have effect on macro and policy variables
I think ABCD has been seen to correctly flex openness of economy, trying to address financial sector and structural issues…
and structural issues affecting Zambia’s economy including the monitory and fiscal policies that underlay
Though the rate regime is not documented except on rate charts with little history on those fluctuation’s.
Let’s have historians at ministries or is it Cartesians to remind us and do data mining techniques to help us refine our decisions The fundamental issue is abound real solid economic growth supported translating in cash flows for long-term management of the kwacha and not fire fighting techniques in a cosmetic way You work out the economy underlying the kwacha
“‘I hope I have made myself clear a little bit or I can continue but let me stop here for others to…
Cry the beloved NWR….who got us into this mess with these thieves? They are borrowing and looting the cash in grand corruption thereby sending the Kwacha into an irreversible downward plunge into the abyss…….Dear Lord, save NWR!!
Incompetence at its best!
Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It”
A little bit of it helps you insulate your currency in times of distress
Copper also though not so attractive can be a source of solace assuming you bought it when prices where correct
Single managing of the currency in rates without addressing fundamentals is no sufficient like ABC has said here
Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It”
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So is Mr. Minister confirming that my hero President Barak H. Obama has performed well? I have not followed USA issues lately cos I get irritated when Obama is being attacked over the Healthcare system mockingly called Obamacare? Democrats have lost Midterm senate elections and Obamacare may not have been implemented? That has been my worry, now to hear that American economy is booming gives me happiness. Reason: Failure by Obama may spell doom for further African American potential presidential aspirants cos it may be used as a yardstick to decampaign them.
Somebody educate me before the Minister confuses, is the American economy is really boayant?
The minister is right in every sense, The US
Us economy is expected to grow and speed up moderately 2015 with reduced unemployment rates GDP to rise to expected 2.8% from 2.4% giving a 0.4% percentage points when you look at last December, 2015 with sales ,capital spending and employment increasing above average by 40% on firm wide basis-micro level The new housing initiative by Obama is something that will also help the economy realise some gains decoupling the economy as it where It’s important also to note and contrast the yield curves on US sovereign bonds against countries like Germany .Notice and learn something about the negative segment of the Germany 30 yr. yield curve against the US…
sorry last quarter December 2014 Observe though interest rates still remain marginally higher in the US that other economies like Germany and the likely indication to raise marginally further and contrast that with increased GDP and employment rates coupled with reduced inflationary rate and increased consumer spending and firm capital expenditures in the last quarters
See how this has come about and factor it in the Zambian and learn one two three good policies from Good American People as we have been wonderfully been educated
its multi dimensional approach as opposed to single policy strategies each complimenting the common goal of “‘towards full employment for ALL”‘