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Kwacha set to depreciate further – financial analystBy Milimo Namangala on 10 Jan 2019
Financial market analyst Mambo Hamaundu says the kwacha is likely to depreciate further following the slowdown in China’s economy that will demand less of Zambia’s copper exports.
And Hamaundu says sustained pressure from Zambia’s mounting public debts will contribute to the kwacha’s depreciation as 2019 ends.
China’s slowed economic growth comes in part from tariff sanctions imposed by the US government under President Donald Trump’s administration.
China, being one of Zambia’s five major export destinations, is reducing on its imports in an effort to stabilize its economy.
When asked if the kwacha would be affected by China’s sluggish economy, Hamaundu said the kwacha’s performance will inevitably be negatively impacted, triggered by China’s reduced copper demand.
“The Chinese slowdown in the economy can only affect the Zambian economy to the extent that their slowdown also slows down the procurement of copper. I think what is truly the link, China is one of the biggest consumers or buyers of copper on the stock market, they, therefore, have an effect on the demand for cooper and they drive the price upwards,” Hamaundu told News Diggers! in an interview in Lusaka.
“Now, if a slowdown means that they’ll no longer be [in] a position to procure or to buy cooper, then definitely, it affects us as a country from an export perspective because a significant portion of our exports is made up of copper and, therefore, if our biggest consumer or buyer is out of the market, then it will definitely affect us. And, of course, an argument can be put to say that, when you check on the figures in terms of who buys, you’d find that their other countries buy, but the ultimate destination is China.”
And he also argued that the kwacha’s performance, though unpredictable, would equally come under pressure by the country’s mounting public debt.
“It is difficult to just put a figure and say this is how high it will go, but I think that the general direction might be that of depreciation. I say so because the kwacha will be receiving a lot of pressure from the issues related to debt,” observed Hamaundu.
“Our country is highly indebted and we need quite a lot of money to service our debt, so that aspect of servicing our debt on its own constitutes a significant demand of foreign exchange whereas the supply side is not really increasing or there are no new suppliers who are coming on [to the foreign exchange market]. So, because of that, the direction is expected to be that of depreciation of the kwacha as opposed to appreciation. But with our debt structure, chances are we’ll have a weaker currency at the end of the year.”
The kwacha depreciated to breach the K12 psychological barrier per dollar twice last year, while Zambia’s external public debt maintained an upward trajectory to hit US $9.51 billion by September 30 last year from US $8.7 billion by the end of December, 2017.Related Items
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