Lusaka (The Business Telegraph): Barely 3 days after the central bank in Africa’s copper producer announced a benchmark interest rate cut of 125bps to 8%, Governor Dr. Denny Kalyala has been replaced by former Deputy Secretary to the Cabinet Christopher Mvunga, a certified accountant and former commercial banker. This appointment was contained in a statement from state house on Saturday 22 August.
Amidst a disease pandemic era, aligned to global central banks, the Bank of Zambia has this year been on an expansionary Monetary policy path characterized by balance sheet expansion and liquidity injections to absorb COVID related credit shocks. Monetary and fiscal policy remains dislocated weighed by external debt of $11.7bln exacerbated by infrastructure spend. Fiscal risks have been amplified by disease pandemic resulting in central bank action to ease monetary policy against the odds in extra ordinarily uncertainty.
Currency risks have widened over the last 3 weeks with the Kwacha shaving over 5.3% to trade north of 19.2 for a unit of dollar in an environment with feeble reserves at decade lows last reported at $1.4bln (2.3months of import cover).
Zambia seeks a rapid credit faculty with the Washington based lender and in June was mandated to commence talks with the IMF for an economic recovery package. For 3 years the copper producer has struggled to lock in a deal with the IMF on account of debt sustainability levels which have caused a decline in sentiment and further manifested in a blow out in credit default spreads on its dollar bonds totaling $3bln.
Analysts are left wondering how the decision and change at monetary policy leadership level will affect the copper producers attainment if it’s restoration of fiscal fitness and approval of a rapid credit facility at such a critical time as this.
Kalyalya was appointed governor in 2015 at a difficult time for Zambia when copper prices had plummeted and the Southern African nation grappled with energy deficits and rising inflation with currency weakness. Mvunga, a member of the Association of Certified Chartered Accountants once served as Deputy Minister of Finance and National Planning before appointment as Deputy Secretary to the Cabinet. He is an ex-commercial banker having served in executive capacities at Standard Bank South Africa and Standard Chartered Banks.
Mvunga has a mammoth task to curb a currency slide while simultaneously effecting growth in disease pandemic era without overlooking inflation. Zambia will announce its fiscal budget on the 25 September a month away, a date investors, offshore players and the business environment looks forward to for fiscal guidance in these uncertain times.
The Kwacha Arbitrageur
