We always like to share reports from other news sources so that you have multiple angles on the issues affecting Zambia. We aim to encourage debate and action not indoctrinate our views. See below on what Bloomberg reported on the Kwacha today.
It goes without saying that though Razia Khan is correct that supply of foreign exchange is somewhat below its levels from some players (but not GRZ given the Eurobond), a more astute reading suggests the challenge are to do with sentiment. It is not an issue of demand and supply per se. It is simply about sentiment and clearly the fundamentals appear to be weakening given PF's general direction. As we have repeatedly noted, we have to see the Kwacha first within its general trajectory over the last three years, and then since September 2013 following the widening fiscal deficit position and subsequent credit downgrade, tapering of US credit and associated policy mistakes. The key is restoring confidence. Sadly, that may become challenging if the gathering suggestions that we may be on the precipice of a major political risk are to be believed :
It goes without saying that though Razia Khan is correct that supply of foreign exchange is somewhat below its levels from some players (but not GRZ given the Eurobond), a more astute reading suggests the challenge are to do with sentiment. It is not an issue of demand and supply per se. It is simply about sentiment and clearly the fundamentals appear to be weakening given PF's general direction. As we have repeatedly noted, we have to see the Kwacha first within its general trajectory over the last three years, and then since September 2013 following the widening fiscal deficit position and subsequent credit downgrade, tapering of US credit and associated policy mistakes. The key is restoring confidence. Sadly, that may become challenging if the gathering suggestions that we may be on the precipice of a major political risk are to be believed :
Zambia’s kwacha retreated to a record low against the dollar, depreciating more than any other currency in the world this month, as lower copper prices and a tax dispute with mines curbed foreign-exchange supply.The currency of Africa’s second-largest producer of the metal, used for electrical wire and water pipes, weakened as much as 2.3 percent, the biggest slide in two months, to 7.035 per dollar. The kwacha was trading at 6.9610 as of 2:03 p.m. in Lusaka, the capital. That extended losses in May to 9.4 percent.The price of copper, which accounts for about 70 percent of Zambia’s foreign-exchange earnings, has declined 6 percent this year. Zambia Revenue Authority withheld more than $500 million in value-added tax repayments to mines, saying they didn’t comply with rules requiring import certificates from the countries their copper ends up in. The dispute is close to being resolved, the Chamber of Mines said on May 23.“Supply of foreign exchange from the mines just hasn’t been up to the usual levels,” Razia Khan, head of Africa research at Standard Chartered Bank Plc (STAN) in London, said by phone today. The mining companies may be retaining foreign currency in expectation of receiving the VAT repayments, she said.The slide in the kwacha seems “overdone” as relatively high yields on government securities may attract foreign buyers, Khan said.Yields on Zambian 91-day Treasury bills rose 50 basis points, or 0.5 percentage point, to 9.5 percent at an auction on May 15. Rates on the nation’s Eurobonds due April 2024 dropped 9 basis points to 7.63 percent.(Source: Bloomberg)