Presidential Statement on Currency and Energy Challenges
Following the deterioration of the currency and energy situation in the country in recent months, His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia has intervened to guide monetary and fiscal policy measures designed to stabilise the markets. (Read more)
The Kwacha is currently trading within the loop shown above and it is very difficult to break. The conditions are currently perfect for ‘shorting’ the currency. Speculators and non-speculators alike are looking to buy whatever major foreign currency they can get their hands on for profit purposes or to shield themselves from the aggressive decline in the Kwacha. Right now, the Kwacha is oversold.
The ONLY thing that can strengthen the Kwacha right now is an influx of foreign currency. The Presidents statement talked about “various intervention measures from Bank of Zambia and the Ministry of Finance”. To this effect, $120 million of the Eurobond 3 funds will be sold on the domestic market to iron out volatility and stabilize the Kwacha. This measure will help for a short period of time but they don’t have enough foreign reserves to keep intervening in this manner. It will be interesting to see what the Ministry of Finance comes up with because Bank of Zambia has done what it can for now.
Other actions that could also provide immediate results:
The idea is to stimulate an appreciation of the currency by increasing supply of foreign exchange which would also result in the unwinding of various short positions (i.e. the people who have purchased forex will start converting to ZMW because they’ll make a loss when it goes up in value) – spurring further appreciation. However, increasing the depth of the export base is the long term solution – and this has to do more with Zambian businesses than the government or central bank.
There are no immediate fixes to the energy situation especially now that the deficit has increased to over 800MW. Mozambique is one of the few countries in Southern Africa not experiencing an energy deficit so there isn’t a lot of excess energy available for importation. Here’s what we learned from the President’s statement on energy:
These moves are a positive for the energy sector in general and could be further boosted by a return to normal rainfall. However, there also needs to be a focus on beefing up the transmission and distribution network because increasing generation (electricity output) by itself will not eliminate the load-shedding.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *