Bank of Zambia (BoZ) Governor Dr. Denny Kalyalya pitches economic pointers!
Written By: Kelvin Chisanga
IN his presentation, Dr. Danny Kalyalya mentioned that COVID 19 will push most of economic activities into slump this year, the governor calls for support on the formulated broad range measures that BOZ is seeking to foster into, in an effort to achieve economic stability by mitigating country’s challenging economic activities.
The nation’s financial market providers are now preferring to invest in the market securities mostly in treasury bills than participating on the broader market space through facilitating of domestic funding to the government on some short terms, as they fear risk associated with private market players.
The lenders have totally shifted their focus of view and minds by lending through short-term basis, as they are actively engage with the financial instruments which have literally proven to be quantifiable in terms of profit with good uptakes, as opposed to facing the usual challenges characterized with loan repayments and this has proven as a sure way of avoiding inconveniences on their part when fulfilling obligations that mainly get disrupted with individual and SME loan undertakings.
It is also strongly observed that the portfolio investors are equally rushing for treasury bills as opposed to government bonds considering the length of tenure, this is simply because there is too much uncertain in the market especially for longer term maturity assets like the government bonds etc. This is giving also a huge number of participation, as the risk appetite is sitting well with most non-residents who are taking leading role within the secondary markets.
A sharp drop in Kwacha with an accumulative percentage loss of 28.9% is worrying, moreover we all know that a weaker kwacha translates in a higher cost of imports, which results in a sustained inflation level.
The inflation is however projected to start narrowing up towards the target bound in the medium term.
Luckily for our situation during this first quarter, we are trending on a good footing compared to South Africa though we are one to one on the currency, but they are badly rated and we seem to have recorded a positive trajectory on valuation effects following depreciation of our local currency against the greenback which is our strongest benchmark and also points out that USD is a good safe heaven in Zambian current scenario.
The US stimulus package has literally cushioned on the global impact, otherwise if it was not that federal intervention through the boosting into the economy, most of the economies would have completely collapsed in their reserves.
Notably, we saw that since three years ago Zambia has started reducing her import bill mainly due to the pick-up of gradual export earnings which started its positive movement from the year 2018, hopefully this is telling us that ‘may be’ we feeding ourselves with some few items being finished in Zambia but the governor threw a worrying state of the mind citing that ‘’if this decrease in importation has something to do with the intermediate commodities then this should sound to worry us”.
I totally agree with him 100%, intermediate goods are basically factors of production as there are not really finished products.
Kwacha’s current poor performance is compounded by various factors such as sovereign credit rating, where Zambia was recently downgraded and this has greatly impacted on the domestic currency, COVID 19 is yet another key factor causing low economic outturns to low economic participation coupled with a plethora of macroeconomic challenges mostly sitting on the fiscal side of governance.
On the positive side, a low interest rates speaks some good news for the SME sector which implies to say that the adjusted policy rate, will speak into ease access of lending facilities at a relatively cheaper price and this could also attract portfolio investors if they so wish especially if they look at growth prospects of taking advantage of COVID 19 opportunities that can be taken out of serious introspective views.
Taking interest rates low, may spark growth in the economy especially if targeted players from the broader market, as money supply will now get to improve within the market and this would equally create a sound aggregate demand for most essential goods locally.
We saw that among the selected commodities such as copper, oil and cotton have all recorded some reductions in demand due to deterioration seen in the global economy, and we expect a continuation until the market stabilizes, these are mostly used commodities on the international market since the global scale is now in recession and this has given a negative impact on most essential commodities.
It’s just unfortunate that Zambia does not feed up enough soya beans to meet the local demands for cooking oil but we always resort to importing.
However, on the domestic market we saw foodstuff stuff as maize grain, wheat, sugar and soya beans receiving good price sentiments due to trade disruptions due to lockdowns in many regions.
Zambia sugar has since received a profit of 14% due to increased local consumption.
Zambia’s international reserves at the end of March 2020, stood at USD1.40 Billion which can directly be translated into having two months of import cover and this was mainly influenced from the net export driven by our copper tax and related mineral sales.
Meanwhile, government remains the largest US Dollar consumer in the local market.
My feeling is that our government should take up a bound step, to negotiate a sustainable oil supply contract during this period so that as a country we can safeguard supply in the medium term, they can secure through an instrument of policy.
From the financial year 2016, it has been seen that the policy rate keeps decreasing towards getting to a single digit figure but surprisingly, there has been no positive change recorded in the economic performances of this nation, as it is only in 2011 where our GDP went higher than 6.7% or perhaps with the hopes of having low interest rates, this can speak into productive SME sector, who we believe are the engine of the economy. – Written By: Kelvin Chisanga