Bank of Zambia Governor Dr Denny Kalyalya says the kwacha’s depreciation against major currency convertibles has been triggered by reduced dollar supply from key sources within the local economy.
According to financial market players, the kwacha has maintained a weak position, depreciating to hit K12.48 and K12.53 per dollar, sliding further from K12.41 and K12.46 per dollar for bid and offer, respectively, a fortnight ago.
Speaking during a press briefing in Lusaka, Tuesday, Dr Kalyalya attributed the current movement in the exchange rate to economic fundamentals, such as the supply and demand of dollars from various sources in the local economy.
He also disclosed to journalists at the central bank that a lack of investors in Treasury Bills had equally affected the performance of the kwacha.
“Concerned? Yes, we are. But it has to be in context. When you look at the movement in the exchange rate, we always say look at the fundamentals. We look at supply and demand. Who is the main supplier of foreign exchange? It’s the mining companies through the export of copper, cobalt and other minerals; Non-Traditional Exports (NTEs); the others are investors; some come to invest in our government paper, which we call portfolio investors. But now, they are more concentrated mainly in government bonds because we auction this paper in kwacha so if you want to invest in bonds or Treasury Bills, you must first convert that foreign currency into kwacha,” Dr Kalyalya explained.
“Now, currently, we have hardly any investors in Treasury Bills as it’s concentrated at about K8.5 billion equivalent in government bonds. So, that has shrunk; we used to have somewhere 17 or so per cent. The other way is the FDIs (Foreign Direct Investments).”
Recent Treasury Bill auctions have been poorly subscribed despite more than K1.5 billion in circulation, with K950 million on offer, successful bids only amounted to as little as K290 million.
He further noted that government’s external debt service was another major source of demand for dollars affecting the kwacha’s value in the local financial market.
Zambia’s external debt was at an unprecedented US $10.05 billion by the end of last year compared to US $8.74 billion by the end of 2017.
Debt servicing commitments equally increased to unprecedented levels of nearly US $760 million last year from around US $63 million in 2013, according to World Bank data.
“Our major challenge as a country is that we have characterised ourselves as importers, which means that it hurts us because when the exchange rate depreciates, you have to cough more kwacha for the same dollar you buy. This is a concern to us because it means that we have surrendered our lives to others such that what happens to China or the USA becomes our fate. Is that really the case? We have enough resources that we can exploit to our own benefit,” observed Dr Kalyalya – SUMA SYSTEMS