FORMER finance minister Dr Situmbeko Musokotwane says Zambians should brace themselves for harsher economic times as the local currency is expected to depreciate further against other convertibles.
And Dr Musokotwane says the 2021 National Budget will be rendered useless if government does not engage the International Monetary Fund (IMF).
In an interview, Dr Musokotwane said the kwacha was more likely to depreciate further beyond the current level due to the continued debt repayments being made by the government.
Yesterday, the kwacha hit a record of K20 to a dollar in bureaus while the interbank rate was hovering around K19.90.
The kwacha is trading around K26.30 against the British pound, K23.50 against the euro and K1.19 against the South African rand.
“The kwacha has reached a milestone, the K20 to the dollar; but don’t expect that to be the worst. Zambians must brace themselves for tougher times. We have been telling the nation over and over again that with these debts that the government has, it has been collecting more and more dollars which will be leaving the country to go and pay the debts, leaving a few around or rather leaving less dollars in Zambia to be utilised for imports and other things. When the dollars are leaving the country like that, the kwacha will fall,” Dr Musokotwane said.
“When I say this is not the worst yet and therefore the worst is yet to come, it is because the levels of debt payment are going to increase. As you know, in 2022 alone, the Eurobond alone, we are going to pay $750 million and then interest payment and all these payments, so unless the government does something to agree with these creditors whom we owe money, the exchange rate is bound to get worse and worse.”
He said the current friction between the government and the mines had also affected the performance of the kwacha.
“There is a lot of tension between the government and the sector which is the main producer, the mines. As you know, today, there is KCM which is struggling because of what government did to put it under liquidation. In the meantime, there is no clarity how the company is going to operate. Now we are talking about taking over Mopani and in the process, the commitment on the mines is bound to weaken,” Dr Musokotwane added.
He further claimed that the government was printing more kwacha notes which had created a shortage of United States dollar.
“The government is printing kwacha to spend, what does that mean? It means that they are creating an artificial demand for dollars because these kwachas that they are printing, they want to buy dollars, whereas you and I can’t print money. We are constrained by how much we have in our pockets. For government, they are not constrained, the only constraint for them is the moral uprightness but which is not there. They are printing money so when you complain about K20 to a dollar, for them, it is nothing because they are printing the kwacha, so these are the forces that are causing the exchange rate to go wild. They may have short term impact but the real things are what I have explained now,” Dr Musokotwane said.
And the Liuwa UPND member of parliament said the government needed an IMF bailout to effectively implement the 2021 national budget yet to be unveiled.
“This government must come to terms with the IMF because the most immediate relief that is required is to tell the creditors that this amount of money you are looking for, we cannot afford, let us increase the payment period. So I was paying for five years, let us increase that to 10 years. To convince the creditors to agree to that they must get assurance that you are doing something to the economy. This is important for Zambia to agree with creditors on a repayment period but backed by an IMF programme, which will be more or less some kind of an overseer supervising government that they are running the things properly,” said Dr Musokotwane.
“The 2021 budget we are talking about is nothing! The budget has already been spent because 90 percent or maybe 95 percent of the money goes to pay salaries and debt servicing. We are only talking about five percent where the Minister now says with this five percent, what am I going to do? So, the budget is already spent, there is nothing serious that is going to come out of it.”