NGOMA

By JUDITH NAMUTOWE-
THE current depreciation of the Kwacha can only be addressed by increasing productivity, cutting down on the excessive dependence on imports and increasing the country’s non-traditional exports (NTEs).
According to Economics Association of Zambia (EAZ), there is need for increased productivity to cushion the demand for foreign exchange which is causing the depreciation of the Kwacha.
The recent depreciation of the Kwacha has caused considerable public concern. EAZ president Isaac Ngoma said there was need to increase productivity, cut down on the excessive dependence on imports and increasing the country’s Non-Traditional Exports (NTEs) to cushion the demand for foreign exchange.
In a statement issued in Lusaka yesterday, Mr Ngoma said EAZ was keenly observing and engaging authorities at different levels on the recent economic developments in the country.
“In moving forward, we need to increase productivity, cut down on the excessive dependence on imports and increasing the country’s NTE’s to cushion the demand for foreign exchange,” Mr Ngoma said.
Since June 2013, the Kwacha has depreciated against the United States dollar posting a margin of 7.8 per cent by March 10, 2014, and had been trading in the region of K6 recently.
Responding to the concerns, Mr Ngoma noted that the Bank of Zambia (BoZ) announced some interventions to prevent the exchange rate from depreciating further.
The BoZ analysis of the causes of the depreciation on the international developments, the copper price and some panic buying of forex was correct.
Mr Ngoma observed that the current account surplus has been declining, mainly due to increased import demand.
He, however, said of concern was the use of $178 million of foreign exchange reserves to defend the currency which cannot be sustained, since the reserves were now declining close to two months of import cover, which was too low.
Mr Ngoma said the BoZ should rebuild the reserves to at least three months of imports as soon as it can, if necessary by letting the currency depreciate further.
Mr Ngoma said the large budget deficit, financed by borrowing from the banking system and planned external borrowing, is also fueling high domestic and import demand, and probably contributing in this way to the depreciation.
He said the Government should restore some confidence to the markets by avoiding crowding out the private sector through bank borrowing, help reduce the high interest rates, and reduce inflationary pressure from the demand side by announcing measures to reduce the fiscal deficit soon.
“This can include some revenue measures, but the main burden should lie with cutting government expenditure. Government should undertake an expenditure review, aimed at eliminating waste and uneconomic projects.
“This is needed in any case, to restore good macro-economic management, but would also reduce pressure on the exchange rate,” he said.