Government has with immediate effect revoked Statutory Instrument number 33 (SI33) of 2012 and Statutory Instrument number 55 (SI55) of 2013 with the hope of redeeming the Kwacha that is currently on free fall. This is barely a year after introducing the laws that the Bank of Zambia (BoZ) claimed had made the currency marginally gain last year.
Finance Minister Alexander Chikwanda has admitted that the two Statutory Instruments had contributed to the fast depreciation of the Kwacha that has become the worst performing among African currencies and second worst after the Ukrainian in the world.
During a media briefing at his office yesterday Chikwanda said the Kwacha had depreciated dangerously by 13.6 percent in the last three months, a situation he said had caused a lot of panic in the economy.
Chikwanda has attributed the depreciation of the Kwacha to economic turbulences being experienced in China and the United States of America (USA) and also blamed what he termed cartels in the inter-banking system which was hoarding dollars.
He said realizing that the Kwacha was weakening at an astronomical rate, government decided to consult the private sector and the business community and that it was found advisable that government considered suspending the two Statutory Instruments because the two had met with serious implementation challenges.
Chikwanda has also confessed that the inflationary rate and the depreciation of the Kwacha had been triggered by the unbudgeted but huge wage bill standing at a staggering 52 percent of the national budget that had been created by the increase in emoluments of civil servants.
He said apart from recalling the two Statutory Instruments as a measure of stabilizing the Kwacha, government had also placed a moratorium on wages for civil servants and employment.
The Government last year introduced Statutory Instrument No. 55 (SI 55), which empowered the Bank of Zambia to monitor the inflows and outflows of money as well as to monitor international transactions.
But Chikwanda yesterday said government had decided to withdraw the two laws stating that the infrastructure development being undertaken across the country had the risk of negating fiscal prudence and economic parameters.
“Current development in the exchange rate is indeed a source of concern to government. The nominal exchange rate of the Kwacha to other currencies particularly the US dollar has come under pressure that has seen it depreciate up to 13.6 percent in the last quarter and the depreciation has accelerated in the last few weeks. Government put in place Statutory Instrument No 55 of 2013 and Statutory Instrument No 33 of 2013. These regulations have had challenges in their implementation and to allow for further consultations, government has decided to revoke the two laws with immediate effect,” Chikwanda said.
He explained that the factors affecting the exchange rate were both domestic and external stating the decline in the balance of payment which had showed a deficit of US$344.9 million compared to the surplus of US$726.7 million in 2012.
Chikwanda however said the depreciation of the Kwacha did not imply that the country’s economy was weakening adding the bleeding of the Zambian currency was temporal.
He said although the Kwacha had significantly depreciated, government was not going to fall into the temptation of looking for interventions that had the risk of affecting the country’s reserves stating that doing so would artificially stabilize the exchange rate and make the country’s economy more vulnerable.
And the World Bank says the move taken by government signaled that the government valued consultation with the private sector on important policy changes.
Country director Dr Kundhavi Kadiresan said the Zambian economy had recently gotten into a difficult situation with a large budget overrun in 2013 and increasing uncertainty about economic policies and direction.
Kadiresan said this difficult situation was partly reflected in the rapid depreciation of the Kwacha and accompanying sense of panic in the markets.
“The recent action will enhance public confidence in policy-making. The government has also re-iterated its commitment to stay within the 2014 budget and move towards lower fiscal deficits in the coming years. This is going to be hard, considering the large wage award from 2013, the still uncertain direction of the wage bill trajectory, and the ambitious capital investment program,” she noted.
The country director observed that this government had made politically hard but economically sound decisions in the past such as those related to reduction of fuel and maize subsidies.
“We hope that the government will build upon these positive actions,” Kadiresan said.