STOP GEARING UP KWACHA EXCHANGE RATE

MAY I be allowed to share my views on the purported recent gains of the Kwacha against the US dollar and other world hard currencies but also make reference to the briefing of the minister of Labour and Social Security, Ms Brenda Tambatamba in her capacity as acting government spokesperson on this issue.

Her statement to me suggested that there was an invisible political hand in the appreciating of the value of the local currency. (I don’t know, but that is how I feel).

First, the value of any currency is based on certain economic fundamentals not least what is being produced and what is being exported. Secondly, the exchange rate reacts to the global flow of trade and the general political situation prevailing at a certain time either in the individual state or the world over.

Looking at the mentioned factors, none of them mitigates for the recent appreciation of the Kwacha given the confusion in the mining sector in the past three years which has badly affected the country’s earning capacity. This country for almost 79 percent of its income comes from copper exports.

The drop in exports of non-traditional commodities has seen a reduction in the country’s income earning capacity while discrepancies in the agriculture policies of the government has badly affected the distribution of fertiliser and other inputs forcing prices of food to skyrocket to abnormal levels triggering a hunger situation amid the threatening El Nino drought coming at a time when the majority of people are in abject poverty and have been driven to the wall.

The anticipated drought this year is expected to affect the energy sector as water levels in most if not all hydro-electricity producing dams is expected to drop to low levels hence pushing the demand for fossil fuel even higher than it is at the moment.

Worse still, the distraction in global trade in the past five years following the outbreak of the Covid-19, the war in Ukraine and the conflict in the Middle East do not help the stabilisation of the Kwacha let alone its appreciation in view of the fact that the currencies of most of the countries in the world are facing volatility and depreciation.

All countries, including the mighty United States of America, are reeling under heavy economic situation as they go through another recession similar to the one that was experienced in 2008 which has seen the depreciation of their currencies.

So what magic has Zambia got to buoy its own Kwacha against all these odds? No magic, simply wishful thinking of some comeby-night economists at the Bank of Zambia and the treasury.

The UPND government and BoZ should allow the free fall of the Kwacha not until it finds its own niche on the currency exchange platform of the world. Any official manipulation of figures to do with the currency exchange, inflation and GDP can only postpone the day of hard reckoning as the economy collapses and then there will be no currency to save!

I am glad some bureau de change kiosks have maintained their own rates which depend on the supply and demand side of business than going with the official rate.

Actually, it is the parallel rating of the local currency which reveals the real strength of the Kwacha on the ground and not what the Ministry of Finance and National Planning and the central bank would like to project as being the state of affairs of the economy.

Limiting the circulation of the

Kwacha, making exporters to declare their sales in dollars with local banks and other measures which the government has put in place are only piecemeal to what really needs to be done to cure the evil of Kwacha depreciation.

The danger of unilaterally fixing the exchange rate of the local currency against proven shortcomings in the earning capacity of the country does not make sense as this government may find itself courting the “Dutch Disease” through the overvaluing the Kwacha but eventually affecting its export position.

Having messed up the economic status quo which the previous regime left the UPND leadership cannot escape the difficulties of starting something new that may not work for this country before the next round of elections in 2026.

Given all this, the Kwacha should be at its weakest point in the entire history of the country’s exchange rate. I mean one does not need a rocket scientist to see that the buying power of the Kwacha is no where it has fallen to dismal levels as prices of goods and services keep rising.

Not only that inflation is still lingering within a double-digit bracket and realistically it cannot be below 15 percent.

Logically, the appreciation in the value of any currency depends on the volume of investment, production and export to bring about low inflation, drop in prices, currency appreciation and a rise in contribution to the country’s Gross Domestic Product (GDP).

Therefore, the government and the central bank should be aware of these factors before thinking of factoring their own figures. They should stop gearing up the exchange rate for political expediency sake.

In a free market economy like ours (contrary to the command state economy of the 1980s), the government should desist from interfering with those given the responsibility of calculating and determining developmental figures.

It is the economic factors and fundamentals which dictate the rate of inflation, the exchange rate of the currency and GDP based on performance. Any ratcheting up of figures to hide political ineptitude will only play to the gallery of failure in the long run.

I mean a wise tailor should cut his cloth according to its size and it is foolishness for anyone to attempt cooking nshima from a drum full of water with a cupful of mealie-meal.

This government should realise the economy of this country is in dire straits and will need the participation of all stakeholders to bring it around.

Other than that, the man in the street does not care a hoot to hear whether the Kwacha has gained or lost, all he wants is to see the price of the commodities and services he so much depends on go down. The ripple effect of the gains should have been felt much earlier than coming from the recent pronouncements.

Continued indebtedness, servicing of foreign loans, reduced earnings from exports do not support the appreciation of the Kwacha as the treasury and the central bank would like people to believe.

I am afraid a few million dollars pushed into a devastated economy cannot justify the reported gain of the Kwacha. Far from it! The same mining company which pumped in the money and other big dealers have a way of siphoning the funds through their business tentacles and then flogging it on the black market.

It is laughable for one to say the Kwacha has gained when fuel prices which have a way of affecting commerce and industry keeps rising. High electricity tariffs will see many small-scale enterprises closing down and throwing thousands of workers on the street, fuelling unemployment, causing a rise in crime and cutting down on production.

Although Zambia may not go the Zimbabwe way when the Zim-dollar at one point reached a toilet tissue value after its former and late leader Mr Robert Mugabe in 2001 seized white farms to give to his liberation war veterans.

All the same, there is reason to worry in the way things are going in this country even as people eventually lose confidence in their local currency.

No, it is not a hidden fact that Western countries have lost trust in the UPND leadership after abrogating some of the promises they made during the campaigns leading to the August 2021 general elections.

All it means is that their support to the country will be limited to bare essentials only. And for China which was a major funder of the previous government and to which this country owes about

US$6 billion may not be willing to dish out money after being sidelined.

With cases of corruption involving some top officials in the government on the rise, support from foreign cooperating partners may soon shrivel and dry up throwing the country into a quandary.

We are already feeling some of the pangs of a nosediving economy despite the International Monetary Fund (IMF) bail out with its harsh restructuring conditions and recovery not a foreseeable aspect apart from official promises that things will be well soon.

Hence, there is really nothing bullish to the purported gain of the Kwacha against the convertible currencies of the world but simply a worked out agenda to mask and hide the deteriorating economic situation in the country as the government sees its programmes not getting anywhere and its public image fast waning due to the suffering many people are being subjected to after assuming power two years ago.