By BUUMBA CHIMBULU
THE copper rebound on the international market is a game changer for Zambia as the mines remain the major foreign exchange suppliers in the country, says the Kwacha Arbitrageur Magazine.
Red metal prices continue to bellwether global recovery with a super strong come back from a trough of US$4,343 a tonne to a peak of US$10,740 a tonne on the London Metal Exchange in the month of May.
Prices have since eased to US$9,989 a tonne following China’s stepping up the fight against rising commodity prices. According to the magazine, higher copper prices helped red metal exporting nations with absorption of dollar denominated obligations, build reserves and narrow fiscal deficits.
It indicated that the mines remained the major foreign exchange suppliers to the Zambian dollar market for which higher red metal prices entailed wider tax proceeds from the mining entities and a quicker shoring of foreign exchange reserves.
“The recent commodity boom provide Zambia an economic rebound atmosphere that Zambia will seek to maximise through dollar reserve accumulation and potentially a sovereign wealth fund architecture to hedge against external shocks.
“Balance of payment support will further ease the current mismatched foreign currency supply versus demand which will in turn address the ease of doing business. It is expected that dollar hoarding, for classes that sought safe haven in times of stress or uncertainty, will ease up as supply increases,” it indicated.
This, the magazine explained, would further ease pressure on the exchange rate and should the base metal boom persist, stronger growth would ensue.
It also stated that Zambia’s reserves were reported at US$1.2billion (March) in part a function of a weak export base as a consequence of low manufacturing capability and the countries net import position.
“Accumulation of foreign exchange has been low and as such has incapacitated the central bank from effectively intervening in the open market to price stabilise the exchange rate.
“It is for this reason that the Kwacha extended losses earlier effects of which were cost push inflationary in nature,” it indicated.
