ZAMBIA’S macroeconomic environment is steadily looking up against the backdrop of lucrative copper prices on the international market and the maize bumper harvest.
The gold reserves at the Bank of Zambia are also building up.
In particular, the exchange rate has stabilised and subsequently improved, what with promising parameters set in the Economic Recovery Programme (ERP) aimed at turning around the ebbing economic fortunes.
Yes, copper prices have hit a record high of $9, 521 per tonne on the London Metal Exchange from a dim level of $4, 745, thereby significantly boosting the export earnings and dollar liquidity in the financial market.
Some critics have insisted that the appreciation of the Kwacha from K22.64 to K21.39 is artificial, yet they have not made reference to the effect of the current attractive copper prices on the economy, bearing in mind that the red metal is the major export earner for the country.
To put this into context, the sustained strong export earnings have precipitated more foreign exchange inflows from the mining firms that pay taxes in United States dollars directly to the central bank.
Invariably, the boom in foreign exchange liquidity has pushed the value of the Kwacha up.
There is no magic at all neither does this require rocket science to understand!
It will be prudent to state that there are a number of factors that influence the exchange rate in an economy, which include political stability, economic health and confidence/ speculation.
For Zambia, the current improvement of the local unit came at the back of economic health, particularly the improved foreign earnings from mining taxes and renewed interest in domestic Government securities by non-resident investors.
In the current scenario, the BoZ received more taxes from mining firms and was thus able to provide a healthy foreign exchange liquidity back into the market, thereby reducing excess demand for the dollar.
The central bank sold $687.5 million.
Therefore, critics must understand that a currency’s exchange rate is determined by the strength or weakness of the underlying economy, meaning the value of the Kwacha can fluctuate from one moment to another depending on the state of the economy.
While the country’s economy is facing certain vulnerabilities, it is also showing some positive flickers such as the bumper harvest of maize and wheat as well as the lucrative price of soya beans on the local and export markets.
Additionally, Zambia has boosted international reserves to $1.4 billion at the end of May, this year compared to $1.2 billion at end of March.
The country is also blessed with gold deposits which Government is harnessing through ZCCM-IH’s subsidiary Zambia Gold Company Limited. So far, the BoZ has stocked $22.0 million in monetary gold.
With a high value currency in Zambia, domestic producers will be prompted to improve their efficiency to fend off competition from imported goods. This will invariably bolster exports.
Economic arguments must not be laced with malicious political undertones and it is incumbent upon politicians to raise the bar in public discourse to win more support.
