Address Inflation and Currency Volatility Through Balanced Monetary and Fiscal Policies
Once again, the Bank of Zambia has raised its monetary policy rate by 100 basis points to 13.5 percent, up from 12.5 percent, in a short period. It is known that the country was grappling with high inflation rates and currency instability when the United Party for National Development (UPND) took office. However, my concern is centered on UPND’s heavy reliance on monetary measures to tackle these challenges, overlooking the need for a holistic approach that combines both monetary and fiscal strategies. This unbalanced approach has proven ineffective in managing inflation and ensuring the stability of the Zambian kwacha
It is crucial to recognize that relying solely on monetary tools to handle inflation and currency fluctuations overlooks the root causes of these economic issues. While adjustments in interest rates and money supply regulation may temporarily impact inflation, they are insufficient in fostering sustainable economic stability. Furthermore, an excessive dependence on monetary policy can result in unintended negative outcomes such as restricted access to credit for businesses and increased borrowing expenses for consumers.
Effective coordination between monetary and fiscal authorities is crucial for attaining sustainable economic growth and stability. Fiscal policies, including government spending and taxation, are instrumental in influencing aggregate demand and supply in the economy. Neglecting the implementation of fiscal interventions can hinder the effectiveness of monetary policy actions and lead to economic imbalances like we are experiencing.
To effectively address inflation and currency fluctuations, the UPND government should implement a comprehensive approach that integrates monetary and fiscal measures. By collaborating closely with the central bank and the Ministry of Finance, policymakers can strive for improved results in maintaining price stability, managing exchange rates, and fostering overall economic development.
It is important to recognize that implementing well-balanced monetary and fiscal policies can create an optimal environment for fostering investment, job growth, and sustainable development. Maintaining price stability and a consistent exchange rate enables businesses to make informed choices in terms of production and investment, which in turn boosts productivity and enhances competitiveness on a global scale.
In addition, adopting a holistic strategy for economic governance has the potential to instill trust among both local and international investors, which is indispensable for attracting investment and driving economic advancement. Through the implementation of responsible fiscal policies, such as decreasing national debt and improving mining tax revenue, the Zambian government can establish a secure macroeconomic environment favorable for sustained prosperity.
The UPND government must prioritize balanced monetary and fiscal policies to tackle inflation and currency volatility effectively. By using both tools together, policymakers can achieve better economic stability and growth. Recognizing the interconnectedness of these policies and adopting a comprehensive approach to economic management is essential for the long-term prosperity of the Zambian economy. Addressing these issues requires collaboration and commitment to sustainable economic growth.
The Struggle Continues
Sensio Banda
Former Member Of Parliament
Kasenengwa Constituency
Eastern Province