Govt has spent US$215m to support the foreign exchange market

BANK of Zambia Governor, Denny Kalyalya, when presenting the decisions of the Monetary Policy Committee that held its meeting on February 12-13, 2024 stated that the economy was doing very badly and was "overheating."

He bemoaned the rise in inflation (annual inflation rising to 13.2 percent) and the continued instability in the foreign exchange market.

He proceeded to announce some of the harshest measures and draconian monetary policy to curb inflation and stabilise prices and exchange rate market.

These are some of the fiscal and monetary measures that have been undertaken;

• The Monetray Policy Rate has been raised by 150 basis points from 11.0 percent to 12.5 percent.

To moderate volatility and broadly support the importation of critical commodities, Bank of Zambia has offloaded $215.5 million on the foreign exchange market.

The Statutory Reserve Ratio was raised by 900 basis points from 17.0 percent to 26.0 percent with effective from February 5. 2024. $461million (K12 billion) mopped to BoZ-Government introduced the ZERO-BASED BALANCE accountsb for Ministries, Provinces and Government Agencies (MPAs). To this effect, Government moved funds totalling K12 billion ($461 million) from commercial banks to Bank of Zambia. All funds in commercial bank accounts to the credit of MPAs was mopped to the Mopping Account at Bank of Zambia.

All funds in commercial bank accounts to the credit of Ministries, Provinces and Government Agencies mopped and repatriated to the Mopping Account at Bank of Zambia.

Turn-over in the interbank foreign exchange market reduced significantly to $14.4 million from $185 million in the previous quarter due to low supply.

In the fourth quarter alone of 2023, the Kwacha depreciated by 17.5 percent against the US dollar and the depreciation continued to 4.6 percent as at February 13, 2024.

The BoZ has formulated and implemented these monetary and supervisory measures that should achieve and maintain price stability and promote financial system stability.

But all these measures remain temporal and not sustainable;

The ultimate solution lie in economic activities and boosting export trade that should earn the country foreign exchange and the subsequent retention of export proceeds in local banks.

Abandon the tax and other incentives that have been given to the mining sector.