This week has three key market events in Zambia namely Dr. Bwalya Ng’andus debut 2020 fiscal budget presentation to parliament, Thursday K950million Bank of Zambia fortnight treasury bill sale and Central Statistics Office – CSO September inflation announcement.
Should Zambia expect fiscal stimulus this Friday?
The week ending the 27 September is a very critical week for Zambia as Finance Minister Honorable Dr. Bwalya Ng’andu will be presenting his debut estimates of revenues and expenditure for 2020 to parliament. Should the market expect fiscal stimulus to boost private sector growth which is already suppressed? Zambias private sector activity is deep in contraction while confidence is at record lows as input inflation is at highs, as currency weakness persists. At a time when Africa’s second largest copper product grapples with a 700MW energy poverty and the worst drought since 1985, there is need for options to stimulate growth which has been trimmed to 2-2.2% by the IMF and World Bank following actualization of risks to growth. Monetary policy has bottomed with close to zero latitude to go any lower as the monetary policy committee focuses on not only taming ballooning inflation which is already pointing north but keeping the fiscal side indirectly in-check. Market participants have called for a budget with a pro business agenda and a budget that will recalibrate the proposed sales tax which has been seen as an adverse solution to the Mines for instance. The Chamber of Mines continued to echo shelving of sales tax citing that it will reduce exploration investment propensity. Other faculties say the tax will be inflationary across the value chain. So that how will Dr. navigate the MinFins production possibility curve to cater for debt which draws closer to maturity each year that passes? Zambias external debt now stands at $10.23billion while domestic debt is pegged at K58.8billion with rising arrears of K16.7billion.
The 2019 fiscal budget was an austerity themed, the markets nonetheless look forward to seeing what Dr. Ng’andu has under his sleeves for 2020 as it will shape the tone of market expectations and fiscal direction.
Will Sept. inflation balloon to double digit?
With a 75% tariff hike on the horizon to help fund 300MW energy imports aimed at plugging a 700MW deficit, inflation remains at risk. Last printed at 9.3% a few points higher than 2015s 7.4% prior to the 100% jump, analysts wait for the CSOs announcement in the week if a dejavus will recur given economic conditions are more severe than those in the 2015 Kariba energy crisis era. The month of September is highly likely to print double digit inflation given the electricity cost strains transmitting to the food and non food value chains.
Will there be purchasing power in Thursdays T-bill auction ?
The central bank will be looking to raise K950million this week Thursday and given the current liquidity the market expects a decent outcome but not as bullish as the last auction that saw 130% subscription. Very minimal latitude exists for yields to ebb higher as the Bank of Zambia looks to keep interest rates in check as the manage the borrowing costs of the state. Yields across the tenor spectrum are expected to remain unchanged.
The Kwacha Arbitrageur
