THE Economics Association of Zambia says the depreciation of the local currency is due to the cautious approach taken by business houses and households moving their investments from kwacha assets to dollar assets. EAZ president Lubinda Haabazoka said what was happening to the kwacha showed that there was an anomaly in the economy, according to technical analysis.
“When you look at the kwacha, a lot of factors come into play. The largest culprits are basically the performance of the bond and what has been obtaining now. The information about withholding of aid, corruption…those have affected the value of the Zambian kwacha. As you know that for the kwacha to be strong, you need foreign exchange inflows and potential investors and the investors already here will consider economic information to make a decision whether to continue investing in kwacha assets or to take a cautious approach. In our case, I think Bank of Zambia and open market operations have confirmed that government is not active on the forex market buying the dollars. The problem might come from the businesses, households that have taken a cautious approach by moving their investment from kwacha assets to dollar assets,” Dr Haabazoka said.
“And also the performance of the Euro Bond, you know, the Euro Bond remains one of the most important barometers to measuring the performance of the Zambian economy. If yields are high, it sends a picture that there is less confidence by investors in the Zambian economy. So potential investors will hold their investment and those who are already here will take a conservative approach by withholding their investments. When you go into technical analysis, you are going to find that during this period of the year, the kwacha goes up until mid-November when businesses start stocking up forex to prepare for the festive season but this is not the time before a budget, the kwacha can lose value.”
He also said lack of accountability for donor aid sends a negative picture to the capital market about the country’s ability to even manage own resources.
“So potential donors shy away; in some cases even investors might shy away. Corruption really has serious negative implications on the economy of the country, especially in Zambia where most of the major projects are being done by donors like the USA, in terms of the rehabilitation of our sewer system, water reticulation system, also the help that we are receiving in the health sector. It sends a very bad picture as to what is happening in the country,” said Dr Haabazoka.
“People cannot stop talking about corruption. But because there are accusations of corruption, people are talking about corruption and other problems in the economy. That is sending a negative picture to the capital market and our bonds are performing very badly because of this. When our bonds perform badly, it comes back to reflect on our economy because now investors, instead of bringing in money, they begin to take a cautious approach. People should continue not only talking about corruption, they should fight corruption. The talk about fighting corruption and bringing to book corrupt people will send a correct signal to the market and our kwacha will perform better because of increased investor confidence. People should continue talking about the fight against corruption. They should also fight it – not just talking about it – so that we can send positive signals to the market.”