ADDRESSING ZAMBIA WHISTLEBLOWER’S QUESTIONS ON BOZ GOVERNOR AND ECONOMIC PERFORMANCE.
By Alexander Nkosi
I just bumped into an article on Zambia Whistleblower questioning the performance of Dr Kalyalya. What did they write and what is my response to points they raised?
1. ZAMBIA WHISTLEBLOWER: They argued that prospects of Zambia’s economic growth seem to be getting dim by the day and they blamed Dr. Kalyalya for this.
RESPONSE: Economic growth is largely driven from the fiscal side managed by Ministry of Finance while the Bank of Zambia manages monetary policy to support fiscal policy measures. Clearly the writer does not fully understand the distinction between the two and the manade of the Bank of Zambia.
2. ZAMBIA WHISTLEBLOWER: They argued that the domestic currency is weak and the exchange rate is unstable. They blamed this on Dr. Kalyalya .
RESPONSE: The Bank of Zambia cannot be blamed for a weak domestic currency and unstable exchange rate. Exchange rate is determined by supply and demand of dollars on the domestic market. Dollars come into the economy through export earnings, remittances and capital inflow. All these are managed under the fiscal policy which falls under the Ministry of Finance. The exchange rate is also affected by the monetary policy being implemented by the USA.
The Banks of Zambia comes in to try and reduce the impact of worse fluctuations and further weakening of domestic currency. However, there is a limit to which monetary policy interventions can successfully manage to reduce this. This largely depends on the pressure points the country is facing. These limitations are also due to the fact that if the Bank of Zambia over applies measures, they would have an adverse effect on the economy worse than what is being addressed. To fully appreciate Central Bank interventions, one needs to understand the pressure points being faced and what the situation would have been in the absence of interventions. Imagine exchange rate of between K22/$ to K26/$ and fluctuating worse than it is? The cost of living and cost of production would be way higher.
3. ZAMBIA WHISTLEBLOWER: Where are the gold reserves we were told can help cushion our ever escalating exchange rate?
RESPONSE: The Bank of Zambia has been actively applying open market operations to ensure the kwacha doesn’t lose much and minimise fluctuations. This is how reserves are used be they in gold or dollar form.
3.ZAMBIA WHISTLEBLOWER: There are no clear guidelines or a roadmap from the Central Bank to show that the effects of the ever increasing fuel prices on the international market will be minimised.
RESPONSE: It is not the mandate of the Bank of Zambia to manage the impact of fuel prices. This again falls on the fiscal side and is mostly done through subsidies. With crude prices increasing to USD90 per barrel last week, Zambia needs around K20 billion per year to bring the price of fuel down to K17 per litre. This is about K1.7 billion per month. Every month Government on average releases about K11 billion. About K8 billion goes to wage bill and debt service (we are still servicing domestic and multilateral debt). The remainder is K3 billion. This is not enough to ensure smooth social service delivery and support economic sectors key to accelerating economic growth. Part of this K3 billion should also ensure smooth running of government, grant aided institutions and all activities in sectors like agriculture, infrastructure, tourism and mining. How then do we spend K1.7 billion from the K3 billion subsidising fuel? Is this feasible?
4.ZAMBIA WHISTLEBLOWER: It was even better for Dr. Kalyalya,’s Curriculum Vitae ( CV) to indicate that he was fired by President Edgar Lungu than to come back and do nothing but watch the economy collapse.
RESPONSE: The author needs to understand the difference between fiscal and monetary policy.
CONCLUSION
In conclusion, the issues the author raised cannot be blamed on the Central Bank. The author does not fully understand the mandate of the Central Bank and its interaction with the fiscal team at Ministry of Finance.
Having successfully defended the Bank of Zambia, this is not to say Zambia’s problems should be blamed on the fiscal team at Ministry of Finance. Zambia has been facing serious economic challenges that cannot be addressed in 2 years. It will take time, even over 5 years to have some stability and growth. This is because at the heart of all this is the huge debt mountain which stands at USD32.5 billion as of June 2023 if we include interest arrears. Zambia is currently only paying domestic and multilateral debt as it waits to sign MOUs with individual official bilateral creditors and negotiate debt restructuring with commercial creditors. It is not paying all the debt but on a monthly basis it only remains with an average of K3 billion after paying part of the debt and wage bill. Had Zambia been servicing all the debt, all monthly expenditure would have been going to wage bill and debt service. This is what has slowed down recovery because what remains is very little to invest in economic and social sectors. There is no quick solution or short cut. This is why foreign direct investment is needed as well as increased participation of local private sector, though economic challenges also affect the rate at which they invest and grow.
Thank you.