DR Denny Kalyalya’s dismissal is likely to trigger a sharp kwacha depreciation because there will be a severe lack of confidence in the country’s economy, says financial market analyst Maambo Hamaundu.
President Edgar Lungu sacked the highly-respected BoZ governor, Saturday, in an abrupt announcement, replacing him with Deputy Secretary to the Cabinet, Finance and Economic Development Christopher Mvunga.
The Head of State terminated Dr Kalyalya’s appointment with immediate effect, subject to ratification by the National Assembly, after the latter served as governor since 2015.
Commenting on the development, Hamaundu said Dr Kalyalya’s dismissal came as a shock in view of his strong performance as governor and vast experience as a technocrat and economist, adding that the kwacha was now likely to post further losses as both foreign and local investors lacked confidence in the country’s economy.
The kwacha sharply depreciated to hit an historic K19 per dollar psychological barrier for the second time in Zambia’s history by close of business, Friday, hitting an average K19.10 per dollar from an opening of K18.98, so far remaining unresponsive to the benchmark policy rate cut effected by the Bank of Zambia (BoZ) last Wednesday.
“It was unexpected, the best description is, it is shocking! No one really expected that Dr Kalyalya would be fired, especially given his track record, commitment and resilience. As a financial analyst, I am of the view that it would have a negative impact on the financial market. I think investors will be sceptical; people in the forex market will be wondering to say, ‘where will the rate go to?’ It could go down further,” Hamaundu cautioned in an interview.
“It would not be surprising at the rate we’re moving, I think in a few days, we’ve seen the kwacha lose strength by four of five per cent. It is still something we are keeping our minds open to say, there is a possibility we could see the kwacha sliding even further because when you look at the measures that have been put in place over a period of time, there have been quite a number of interventions using monetary policy just to keep the kwacha in check. And minus those interventions, the rate would have been much worse. So, it is very possible.”
He stressed that government must be transparent about why Dr Kalyalya was dropped from his position for market players to clearly know what direction President Edgar Lungu was taking the country.
“What I would appeal for is for the country to be given an insight of what led to his contract being terminated because in the absence of information on why his contract was terminated, people will be left to speculate as to the reason why he was gotten rid of. And with speculation, it comes with its own negative sentiment. It would not be surprising, as we go into this week, to see the kwacha sliding against major currency convertibles; it would not be surprising to hear people, who ordinarily would want to do business in the country, slowing down. So, it would be opportune for government to avail us with information as to what led to his contract being terminated,” said Hamaundu.
“Of course, we are oblivious to the fact that the President has got the authority to hire and fire. But on this one, he owes us an explanation as a people as to why this man (Dr Kalyalya) has been fired. It really is not a good position to be at as a country. So, one would hope that information will be quickly made available. If there’s a possibility of taking corrective action, it must be taken because we cannot afford to have further slides in terms of economic performance than where we already are.”
This year, the kwacha has oscillated between gains and losses, but has remained on a depreciating trend in view of the absence of US dollar suppliers on the local market, causing what frequently is panic buying of the greenback.
Dr Kalyalya’s dismissal comes just 12 months away from a crucial general election, as Zambia’s economy continues to grapple with the devastating COVID-19 effects and sluggish growth.