Biz & CorporateBusinessLocal NewsPoliticsPremium

Impose foreign Exchange control


MULTINATIONALS externalizing huge amounts of hard currency are behind the demand pressure depreciating the Zambian Kwacha, therefore the Bank of Zambia should consider implementing foreign exchange control in the short term to stem the tide, a Zambian economist has proposed.

Economist Trevor Hambayi has urged the Central Bank to invest in short term measures like imposing exchange controls in order to cushion the current rapid depreciation of the kwacha.

Mr Hambayi joins the chorus of Zambian economists complaining that illegal and clandestine exports of emeralds, cobalt, Sugilite and gold were draining the country of precious resources as foreign conglomerates exploited weak controls to externalize earnings off shore.

He has described as drastic the measure by the BoZ to raise the Statutory Reserve Ratio from 17 to 26 percent, which measure, he said was not working because of the  continued pressure on the  Kwacha which in turn was affecting the economy adversely.

Financial institutions, starved of liquidity, would also be going on the market to buy currency to meet their obligations thereby exerting additional pressure on the Kwacha, which was likely to depreciate further.

The new ratio, he said, was likely to increase the cost of doing business which will result in an increase in prices of commodities and eventually increase the cost of living for ordinary Zambians.

He advised the Central Bank to implement long term measures like working to grow the Gross Development Product-GDP in order to obtain a positive trade balance to deal with the instability of the foreign exchange rate.

Economic observers believe that the bank tightening of monetary policy may result in rises in interest rates, to cool down the economy and combat inflationary pressures, which may in turn lead to higher borrowing costs for businesses and consumers, potentially slowing down economic activity and dampening investment and consumption.

The unusual hike, it is feared, will create additional uncertainty in financial markets, where investors may reassessing their strategies and adjust their portfolios in response to the new interest rate environment.

The last time Zambia introduced exchange control regulations was in 2012 and 2013 in an attempt to halt the rapid devaluation of the Kwacha, but these were abolished in 2014.

In 1994 the new Movement for Multiparty Democracy (MMD) removed exchange control regulations in a bid to restore of economic growth and increase employment through liberalizing the economy and allowing market forces a greater role.

At that time all Price controls and subsidies on all consumer items were abolished Exchange Control Act was scrapped, resulting in no controls on the conversion and transfer of currency from Zambia, with investors being free to repatriate any funds, whether or not generated from a source in Zambia, provided they have been derived from legitimate sources and provided the necessary taxes and duties have been paid.

However an abuse of the liberal measures saw some control being introduced.


Related Articles

Back to top button