BOZ Chief Con­fi­dent of Bailout Pack­age as IMF Tem­po­rar­ily Halt Deal Dis­cus­sions

Zambian Business Times - - BUSINESS REVIEW -

“In a de­pre­ci­at­ing cur­rency en­vi­ron­ment, that re­ally puts a toll on the re­serves.” Yet two years ago, soon af­ter tak­ing up the po­si­tion of gov­er­nor, he said he felt help­less and dis­heart­ened.

As Zam­bia’s cur­rency, the kwacha, spi­ralled down­wards, shop­keep­ers would con­stantly erase and re­write price tags, up­dat­ing in real time the cost of the items they sold.

“It was very dis­rup­tive and was re­ally a threat to the ef­fec­tive­ness of mon­e­tary pol­icy,” Kalyalya said now of that brief pe­riod when the cen­tral bank seemed to have lost con­trol of the situation.

Peo­ple started call­ing the Kwacha the ‘ ZimKwacha’, a ref­er­ence to Zim­babwe’s trou­bled cur­rency. “We had to act to stem that,” he said. Kalyalya, who was an Ex­ec­u­tive Di­rec­tor at the World Bank with over­sight of 22 African coun­tries in­clud­ing Zam­bia be­fore he re­turned home to take up the role Cen­tral Bank Gov­er­nor, said he wanted to pre­vent Zam­bia from go­ing the way of its trou­bled im­me­di­ate South­ern Africa neigh­bour went.

Two years on, that worst-case sce­nario ap­pears to have been avoided. Kalyalya says the re­forms Zam­bia is now push­ing through will make its econ­omy, cur­rency and bank­ing sec­tor more re­silient to stresses in the fu­ture. The cri­sis in 2015 stemmed in large part from Zam­bia’s his­tor­i­cal eco­nomic de­pen­dence on cop­per –dutch dis­ease, which is the coun­try’s main ex­port and ac­counts for a whop­ping 74% of Zam­bia’s for­eign ex­change earn­ings and close to 30% of govern­ment rev­enue.

Cop­per had fu­elled the coun­try’s eco­nomic boom, gen­er­at­ing an av­er­age an­nual gross do­mes­tic prod­uct - GDP growth of 6% to 7 % over the pre­vi­ous decade. But when cop­per prices fell, be­cause of lower de­mand from China which con­sumes 43% of global cop­per, , the Zam­bian econ­omy took a se­vere hit.

The kwacha fell, and the cen­tral bank’s move to raise the statu­tory re­serve ra­tio in 2014 was not enough to ease the pres­sure. Ear­lier on in his ten­ure, Kalyalya said he would deal with cur­rency volatil­ity with mea­sures in­clud­ing tight­en­ing liq­uid­ity.

But while that helped the kwacha re­coup some of its losses against the dol­lar, the chal­lenges fac­ing the cen­tral bank soon be­came even greater, cul­mi­nat­ing in Zam­bia’s "Worst Mon­day" on Septem­ber 28, 2015, when the cur­rency fell by about 16% against the dol­lar in a sin­gle day.

“It’s like you are driv­ing and you see the [speedome­ter] nee­dle go­ing,” Kalyalya re­calls of the speed at which the cur­rency fell. Zam­bia’s woes on that day were aligned with those of min­ing group Glen­core, the par­ent com­pany of Mopani Cop­per Mines, the sec­ond-largest em­ployer in Zam­bia af­ter the govern­ment. Dr. Kalyalya’s first term as Cen­tral bank gov­er­nor draws to a close next year.

In other news the In­ter­na­tional Mon­e­tary Fund (IMF) has said it has tem­po­rar­ily halted bailout talks to al­low the Zam­bian govern­ment to put pub­lic debt on a sus­tain­able path.

Zam­bia is seek­ing a $1.3 bil­lion bailout from the IMF.

"The talks were put on hold af­ter pro­vid­ing new in­for­ma­tion on govern­ment’s ex­ter­nal bor­row­ing plans needed to be rec­on­ciled key pro­gram ob­jec­tive of putting the debt on a sus­tain­able path,” IMF res­i­dent rep­re­sen­ta­tive Al­fredo Bal­dini told jour­nal­ists on Thurs­day af­ter­noon. He also dis­missed claims that for­mer IMF coun­try mis­sion chief Tshidi Tsikata had been re­placed for fail­ing to close the deal with the Zam­bian govern­ment.

Bal­dini also ex­pressed con­cern with the pace at which Zam­bia’s pub­lic debt was con­tract­ing, say­ing this would put Zam­bia at high risk of debt dis­tress. While ac­knowl­edg­ing Zam­bia’s need to ad­dress in­fra­struc­ture gaps needed to main­tain debt sus­tain­abil­ity, Bal­dini sug­gested it was crit­i­cal for Zam­bia to slow down on the con­trac­tion of new debt.

The newly ap­pointed mis­sion chief to Zam­bia is Baileau Loko, the IMF an­nounced ear­lier this last week. Zam­bia has been seek­ing a bailout since 2014.

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