The Zambian Government recently reached a staff-level agreement with the International Monetary Fund (IMF) team on a new arrangement under the Extended Credit Facility (ECF) for 2022-2025 to help it restore its macroeconomic stability and provide the foundation for an inclusive economic recovery. The Staff-Level Agreement between the IMF and the Government of Zambia stipulates the economic policies, financial policies and reforms which the Government will take up over time. This three-year extended credit facility is worth about SDR 980 million or $1.4 billion and it brings Zambia one step closer to a comprehensive debt overhaul. We should all bear in mind that this ECF is yet to be approved by the IMF’s management and Executive Board.
Even though the staff-level agreement is yet to be approved, it is already bearing fruits for Zambia and this can be seen in the Zambian kwacha (ZMW) appreciating against the United States (US) dollar. Following the announcement of the staff-level agreement, the Zambian kwacha appreciated to K16.0000 per dollar on 9th December, 2021, from a close of K17.8078 on 2nd December, 2021. Entities or individuals holding foreign exchange are likely to start converting to the Zambian Kwacha to avoid further foreign exchange losses. The current high US dollar supply and sudden inflows into Zambia of US dollars is coming from off-shore market players and corporations closing off their dollar positions. The Zambian kwacha (ZMW) is expected to continue making further gains against the US dollar due to positive sentiment from the staff-level agreement reached between the IMF and the Zambian Government for a bailout. Market fundamentals have remained largely unchanged and this means that the current appreciation in the Zambian kwacha against the dollar is only being driven by investor sentiment.
As long as the Zambian kwacha’s appreciation is sustained, it could contribute to fighting current high inflation levels and compliment the Bank of Zambia’s Monetary Policy Rate adjustment by 50 basis points to 9%. This means that fewer Zambian kwachas will be needed to buy US dollars.
Zambia is a highly indebted country and most of the debt was accumulated in the last decade by the previous Patriotic Front (PF) Government. It was the previous PF Government’s expansionary fiscal policies that contributed to Zambia’s debt problems. The PF Government’s expansionary fiscal policies for public investments, despite falling revenues, contributed to widening fiscal deficits (8.3% of GDP in 2019 and 11% of GDP in 2020). The PF Government’s expansionary fiscal policies, which were mainly financed by external and local borrowing, led to Zambia’s public and publicly guaranteed debt to rise to 91.6% of GDP in 2019 and 104% of GDP in 2020. In the medium term, Zambia’s debt to GDP ratio is expected to remain high. On 3rd November 2020, Zambia became the first African country to default on its international debt since the outbreak of Covid-19, as it couldn’t make the $42.5 million in interest payments on its three Eurobonds in mid-October and it also couldn’t honour payments at the end of the grace period given by the investors. Read more
On 16th December, 2021, the Energy Regulation Board (ERB) announced fuel price adjustments. Wholesale and pump prices for petroleum products were revised upwards effective midnight 16th December, 2021. The pump price of one litre of Petrol has increased by K3.54 and now pegged at K21.16 from K17.62. The pump price of one litre of diesel was also increased by K4.56 to K20.15 from K15.59. The pump price of one litre of Low Sulphur Gasoil (LSG) was increased from K17.82 to K22.29 which gives an absolute variance of K4.47. Kerosene prices have remained unchanged. This follows an announcement by the government that fuel subsidies will be removed so as to migrate to cost reflective pricing as a measure to return the nation on a path to debt sustainability. This adjustment is part of the economic reforms being implemented by the United Party for National Development (UPND) Government as part of its staff-level agreement with the International Monetary Fund. Read more
INCREASE IN THE MONETARY POLICY RATE MAY WORSEN LIVING CONDITIONS
The cost of living for a family of five as measured by the JCTR Basic Needs and Nutrition Basket (BNNB) for November 2021 stood at K8, 145.28. This is a K123.44 decrease from K8, 268.72 in October 2021. The downward movement in the basket is attributed to reduced prices of items such as 1kg Kapenta which went down by K56.76 from K290.63 to K233.87, 40kg of vegetables which went down by K14.83 from K438.62 to K423.79. Additional reductions were noted in the prices of 14kg of other fruits which reduced by K204.9 from K314.65 to K109.75. However, the November basket also recorded price increases in items such as 10 litres of milk which increased by K52.84 from K244.26 to K297.1, 1kg pounded groundnuts increased by K13.68 from K34.97 to K48.65, 2kg soya pieces increased from K113.68 to K126.46. Additionally, the non-food but essential items section also recorded an increase in a 90kg bag of charcoal from K360 to K378. Read more
kindly attribute the statement to Ms Muchimba Sarah Siamachoka- Manager Faith and Justice