FINANCIAL analyst Maambo Hamaundu says for the kwacha to continue on the path of appreciation, President Hakainde Hichilema needs to make certain decisions that will maintain the confidence which his election generated within the financial market.
The kwacha has been on an upward trend against major convertible currencies and on Monday closed at K16.72 to a dollar according to the Bank of Zambia.
In an interview, Hamaundu said maintaining the trend would depend on certain activities after the swearing-in of the President.
He noted that because of the confidence in the new leader, various local and international market players were bringing in resources into the country.
“At the beginning, I think it will be dependent on how long the levels of confidence will hold because with confidence, there are a number of activities that are taking place. There are people who because of that confidence are actually bringing in resources into the country. There are some who were probably hoarding the money offshore and they are bringing the forex into the country that is helping boost our forex position. There are investment pledges which could convert into actual investment that could help support the kwacha,” he said.
“So really at the end of the day, it is dependent on what activities will follow. Of course, at the beginning there is the aspect of confidence because the man who has been elected President is a seasoned business person not just in Zambia, his businesses are acclaimed internationally. And not just because of that, there is a lot of confidence oozing around, so really, we have to wait and see what pronouncements will be made and how we will move after that.”
Hamaundu noted that for the kwacha to maintain its appreciation, there was need to ensure a balance between supply and demand.
He also emphasized the need for proper negotiation of the country’s debt restructuring process.
“For the kwacha to hold, we really have to ensure that supplies are improved whilst we are also trying to balance them with the demand. On the demand side of things, what must be looked at is the aspect of debt because it was siphoning a lot of money from the country. It was putting a lot of demand pressure and therefore depending on how government will negotiate, because I would like to believe that a lot of creditors were waiting to see what will happen at the elections, and then they can engage. So I am hoping that government can actually engage the creditors and see if there can be some restructuring which can be agreed and that will help support our currency,” Hamaundu said.
Hamaundu stated that the coming on board of the IMF would also increase credibility and enhance confidence.
“IMF is also talking about coming on board; there have been protracted talks with the IMF. If the bailout package does come through, the US$1.4 billion balance of payment support, it will help enhance our forex position as a country and beyond that. We will also have an aspect of enhanced confidence because if you are given a package from the IMF, the IMF has its own credibility and that credibility will also be passed on to us as a country because of just getting that bailout package, the confidence levels will be enhanced,” said Hamaundu.
“So I think in the short term, if all these things I have spoken of do happen, the prospects could be good. And ultimately, what will determine the future is, if we do have these savings from the creditors in terms of deferment of interests as an example, it is where we will put the resources which we should have been paying out, how are we going to utilize them. So at the end of the day, it will be about production and productivity.”