LUSAKA (The Business Telegraph):- Africa’s second largest copper producer, Zambia seeks direction, optimism and confidence claw back after a tough year ravaged by disease pandemic that has amplified most of it’s already existing economic and fiscal related issues. Republican President His Excellency Edgar Lungu will address opening of parliament on 11 September in a build up to presentation of the national estimates of revenues and expenditures for the year 2020.
Zambia has many stakeholders seeking direction and clarity as to its economic trajectory at a time when the nation is set to recede 5% (IMF estimate) and generate a fiscal deficit higher than 6.5% at a consensus of 7% (revised after the monetary and economic stimulus interventions). Business pulse is in the doldrums having printed below 50 for 18months straight as disease pandemic weighs Business fabric as measured by purchasing managers index. Debt still remains elevated at $11.7billion despite the accumulation pace curbed while the copper producer takes steps to restructure its liability profile. Lazard has started to make traction after appointing Morrow Sodali to conduct a stock take of Eurobond holders for Zambia a step towards restructure. What is clear is that these holders will only agree to a restructure if Zambia gets an IMF bailout package.
A recent currency rout has signaled a confidence flight in the economy as it grapples with dollar scarcity due to a confluence of factors key of which include rising demand for agriculture inputs and petroleum an autopsy of an arrears dismantling program. Some of these drivers of depreciation signal the need to boost manufacturing capability even for fertilizers as Zambia did produce through the Nitrogen Chemicals of Zambia – NCZ. Efforts to boost dollar supply to the authorities for their foreign currency obligations and further shore up forex reserves through dollarising all mining taxes has starved the open market of dollars. This imbalance between supply and demand fundamentals has resulted in exchange rate depreciation with catastrophic effects on debt to gross domestic product and cost push inflationary pressure.
ZAMBIA GRAPPLES WITH THE BAR OWNERS PARADOX
Managing Partner of Nikiwa Capital Munyumba Mutwale on Spring24TV Money Watch segment on 10 September likened Zambia situation currently to a bar owners paradox. A bar targets having traffic constantly for spending activity to continue but to do so, the entry fee and dress code must be affordable.
“The biggest problem Zambia is facing at the moment is a high fee at the door to get as many people in while it also has a high dress code regulatory standard which must be dropped. You also want to drop the price of drinks representing taxes. This is how a happening club gets Its reputation out there,” Mutwale said. This is what will even make tourists come through to your club when they visit your city, he said.
Zambia needs to rewire it’s model to ensure the economy is functional internally so as to attract external investment participation through treasury bill and bond auctions in addition to foreign direct investments.
The Southern Africa nation awaits a rapid credit facility from the Washington based lender IMF as it in the interim funds its programs using the domestic money markets a shift from external funding to curb debt accumulation. Bond holders, multilaterals, analysts, the private sector and other interested parties are all eager to get hints on direction of the economy. This they will seek to pick hints from the Presidents speech as his opens parliament on 11 September a fortnight exactly to the fiscal budget presentation by Dr. Bwalya Ng’andu Minister of Finance.
This budget is key especially that Zambia has a exactly a year to the polls and will spell how the state intends to navigate incomplete infrastructure projects, taxation policy, health care in light of inadequacies that COVID has exposed and the private sector growth agenda.
The Kwacha Arbitrageur
