Zambia Institute for Policy Analysis and Research (ZIPAR) research fellow Caesar Cheelo says the Kwacha is likely to depreciate further due to Zambia’s poor economic structure.
According to the Bank of Zambia as at midday, Wednesday, the Kwacha was buying at 15.47 to one dollar and selling at 15.78 to a dollar.
In an interview, Cheelo said the depreciation would continue because nothing had been done to stop it.
“These depressions that are happening will keep happening because we haven’t done anything to change the structure of the Zambian economy. We haven’t invested our public and private resources where we can earn money or where we can add value so that we substitute away from some of these imports that we are basically depended on things like energy when there is a shortage; things like food and manufactured inputs; those things that are dependent on imports. If we can put money there and improve domestic production of those, then it will ease the pressure on balance of payments; it will ease the pressure on the Kwacha; so we will see a stabilization if not an appreciation,” Cheelo said.
He said transforming the current economic structure would be difficult due to fiscal constraints.
“But that is going to very difficult to do because that is putting money in some of these areas because now especially when we look at it form the public sector point of view, we are out of fiscal space especially when you look at it from the public sector point of view. We have significant fiscal constraints because we are paying a lot on debt service; we are paying a lot on the wage bill and we have a lot of arrears that we need to dispatch on goods and services; VAT refunds to the mines and so on and so forth,” he said.
“It is a very tight situation. This type of structural transformation that I am talking about is going to be difficult to pull off in this environment. But it all speaks to infrastructure development or any capital development; if we are choosing railways or roads, how much productivity is yield compared to if you setup a factory that is responsible for domestic production? How much production will the roads and railways contribute compared to an energy project that stabilizes energy supply? A lot of issues have to do with our fiscal choices in public expenditure; our public investment where do we preferably put them as a country?” he wondered.
Cheelo insisted that debt servicing was putting pressure on the local currency.
“The pressure from the external debt service is likely to put pressure on the [Kwacha] because the government has to raise kwacha cover amidst the pressure. Another point of pressure is likely to be from imports; our imports of food for example as we experience food shortages that passes through the domestic economy both in terms of depreciation because you are not dependent on yourself for food; you are dependent on other countries, you are putting pressure on yourself to raise the money in foreign currency to buy the food. Same thing on our manufacturing, most of our manufactured food are actually imported; so the more we import to top up our manufacturing, the more we have to put pressure on ourselves in terms of raising the cover,” said Cheelo.
“So all things I am talking about is a structural thing, it is to do with our structure. We are dependent on the world a lot to satisfy our import demand but we don’t have relatively that much export to the world so we are not as relevant to the world as the world is to us; we are more dependent on the world. If you actually look at the long term depreciation on average, the Kwacha loses about 13 per cent of its worth. If you look at 1995, 1996 to 2020, every year, the Kwacha will lose about 13 percent of its worth. In the 90s, it was actually worse. Sometimes the annual depreciation was as deep as 54 percent or 58 percent. I think in recent times the worst period was in 2015 when the Kwacha depreciated by 41 percent in that year.”