There’s liquidity in the economy, that’s why Kwacha is under pressure – Nkhoma

Noel Nkoma makes his contribution during the Ministry of Finance and National Planning post budget townhall symposium at Lusaka's Mulungushi International Conference Centre on November 1, 2021 - Picture by Tenson Mkhala

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Noel Nkoma makes his contribution during the Ministry of Finance and National Planning post budget townhall symposium at Lusaka's Mulungushi International Conference Centre on November 1, 2021 - Picture by Tenson Mkhala

ECONOMIST Noel Nkhoma says the excess liquidity in the economy is what is putting the Kwacha under pressure against major currencies like the US dollar.

Nkhoma says the recent interventions by the Bank of Zambia are, however, meant to mop out that excess liquidity.

Last week, the Bank of Zambia revised the statutory reserve ratio on both local and foreign currency deposits by nine percentage points to 26 percent from 17 percent.

Speaking when he featured on ZNBC Sunday Interview programme, Nkhoma disagreed with the narrative that there was no liquidity in the economy.

“The Kwacha value to convertible currency like a dollar is all anchored on what we call demand and supply. So we have seen that there is a huge demand for the dollar. Now, what are you using to make that call or demand is the Kwacha. For us to be in a position where we are today, it tells that there is something happening in the economy. I don’t agree with the narrative that there is no liquidity. If there was no liquidity where is the Kwacha which is chasing the dollar coming from? It tells you that there is liquidity in the economy that is why the Kwacha has come under pressure. Where is it coming from? I will give an example first of all, let us not under play the 20 percent NAPSA partial withdraw. That also has fed into the demand of the dollar. Government has been liquidating long outstanding pension arrears, these are in billions,’’ he said.

“It’s not an issue of liquidity, the liquidity is actually what has driven the Kwacha to come under pressure. If you look at the import data that we have on the issue of machinery and equipment, it’s huge. It tells you that our appetite to import… But the good thing about it is importing productive goods in terms of machinery and equipment to come and begin to address the issues of productivity which has been absent for some time. What I’m saying is that this is a good sign that there is something happening in the economy’’.

He said the Central Bank was trying to mop out excess liquidity in order stabilise the exchange rate.

“Now if you look at the data coming out from the Bank of Zambia, that should tell you the pressure is coming from the excess supply of liquidity on the market, that is why the Bank of Zambia is mopping out that excess liquidity. Well, the moment that is achieved, it shouldn’t be a long intervention in terms of mopping out liquidity, it should be a short term intervention to be able also to support the kwacha. I think you will see some stability going forward. And the moment the kwacha ploughs back its lost value maybe coming down to 25 percent, the impact in terms of the pricing of fuel, pricing of other imports and the cost of living will be felt. It’s as simple as that,” he said.

Meanwhile, Nkhoma said he was confident that the debt restructuring process would be resolved before the first quarter ends.

“I think debt restructuring is on course, I am extremely confident that this should be resolved hopefully this quarter. We have only started the quarter, we have two months to go. I am confident and I am assured that it will be resolved. I think there are some things which have happened in 2023 which are going to enforce my earlier statement to the effect that this year we should be able consolidate. Now one of the things that we have seen is some huge portion of what we call domestic debt in as far as our own state owned enterprise is being liquidated. So we should say renewed investment arriving from the saving that we are now going to plough back into the economy,” said Nkhoma.

“2024, I’m seeing the debt issue being resolved which should give us some window to be able now to progress as a country. I am seeing the mining sector beginning to also make a major contribution in terms of the supply of the green bank. Also dealing with the issue of the Copperbelt economy, employment, direct and indirect in terms of suppliers and contractors to the mines which will be able to form and anchor the projected growth in the GDP going forward. I also see further investments in renewable energies, I think we have now gone very strong on the green economy. We should be able now to see alternative and cheaper sources and supply of energy. And lastly, we should be able to see stability in the exchange rate and stability in the price of fuel going forward’’.