The Centre for Trade Policy and Development (CTPD) has warned that Zambia will not have any foreign reserves to cover the US$750 Eurobond bullet payment by 2021 if it’s declining international gross reserves situation is not addressed.

And CTPD has doubted Bank of Zambia’s capacity to diversify into gold reserves when it has failed to keep currency reserves despite setting repeated objectives to increase them in successive past budgets.

Last Friday while in Washington D.C. where she was attending spring meetings of the IMF and Word Bank, Finance Minister Margaret Mwanakatwe told Bloomberg TV that she was not worried about the country’s declining international gross reserves because her government had mitigating actions that would improve the falling reserves.

But in a statement, Tuesday, CTPD executive director Isaac Mwaipopo expressed worry that if the country’s foreign reserves continued to deplete, Zambia would fail to maintain the value of its Kwacha, default on external debt obligations, experience lower economic growth, expose itself to currency attacks and other devastating effects.

“CTPD finds the recent statement by the Minister of Finance, Mrs. Margaret Mhango Mwanakatwe, on Bloomberg concerning the status of Zambia’s foreign reserves deeply worrying. The rapid depletion of a nation’s foreign reserves or international reserves must be a cause for serious concern and should not be taken lightly, especially by the Minister entrusted with the responsibility to oversee and manage public finance. Countries keep stock of foreign reserves in order to maintain foreign currency liquidity in case of an economic crisis. This is why such reserves are translated into month of import cover-implying the need to have reserves to cover imports in case the country’s ability to earn more currency is negatively affected. The Central Bank also keeps foreign currency in order to instill investor confidence, to make sure the country meets its external obligations and to keep the financial market stable. The rate at which Zambia’s foreign reserves are depleting cause for serious remedial measures,” Mwaipopo stated.

“If Zambia’s foreign reserves continue to deplete, CTPD foresee a situation in which the nation’s fails to maintain the value of the Kwacha, defaults on external debt obligations with respect to the Eurobonds, reduced FDI due to falling investor confidence, experiences lower economic growth, and exposes itself to currency attacks. The Central Bank will find it increasingly difficult to maintain the inflation rate and respond to exchange rate depreciations. Zambia’s foreign exchange reserves were estimated at $2.4 billion in April, 2017 but as of February, 2018, Zambia’s foreign exchange reserves stood at US1.867 billion which is roughly two months of import cover. Most recently, the reserves have been estimated to be around US$1.2 billion as at end of March 2019. This means the reserves have been depleting by about US$600 million per annum on average between 2017 and 2019, based on this, CTPD estimates that Zambia will have no reserves by 2021 to cover the US$750 Eurobond bullet payment if the situation is not corrected.”

Meanwhile, Mwaipopo stated that it was unlikely for the Bank of Zambia to succeed in holding mineral reserves because it had already failed to keep currency reserves despite setting repeated objectives to increase foreign reserves in past budgets.

“The minister of Finance cited Zambia’s rich mineral resources in copper, gold and uranium and stated that the Bank of Zambia will now start having gold reserves. Though it is true that central banks can also diversify into gold reserves, this may not work for Zambia. If this was the alternative solution, we should have done it many years ago, how can Zambia build gold reserves when it has clearly failed to keep currency reserves despite setting repeated objectives to increase foreign reserves in successive past budgets? The most critical issue is that the nation has borrowed excessively and needs to limit its borrowing in order to reduce interest payments. Government should not take the depletion of foreign reserves lightly as this has the potential to unleash a host of macroeconomic and social hardships on the economy and the Zambian people,” stated Mwaipopo.