By Amb. Emmanuel Mwamba
Reserves drop by $300m in 3 months
The Bank of Zambia – BOZ has disclosed that Zambia’s international forex reserves have dropped by about $300m. Dropping International reserves balances are indicative of expected future stress on the Kwacha as they are seen as a buffer to defend against steep currency depreciation
BOZ Governor Dr. Denny Kalyalya revealed that propping up the Kwacha and various government uses such as debt service coupled with diminished receipts from the mining sector resulted in the net outflow.
Dr. Kalyalya stated that “support to the market, multilateral debt service, and Government uses contributed to the decline in gross international reserves to equivalent to 3.3 months of import cover or US$2.8 billion prospective imports”.
The reserves have dropped at end of March 2023 from US$3.1 billion equivalent to 3.8 months of import cover. US dollar reserves have proved to be a challenge for successive administrations as the traditional source of forex – copper mining which accounts for over 70% of Zambia’s exports is controlled by foreign privately owned companies.
Negotiating with these global mining firms to bank their sales proceeds in Zambian banks or even foreign banks with branches in Zambia has proved futile, resulting in the Kwacha perpetual depreciation trend.
An effort to diversify to gold reserves which could be stockpiled using a state owned company suffered a major setback after the ministry of mines abruptly closed a huge gold find that was seen as a viable alternative.
Kasenseli gold mine of Mwinilunga was closed towards the end of 2021 initially indicated as temporal and that it would take three months to deal with some ‘operational and transitional’ issues but the gold mine has now been closed for over one year.
As it stands, the above 3 months import cover remains within a safe margins by global standards but another quarter of bleeding will result in below 3 months import cover and resultant escalated volatility of the Kwacha.
The Zambian government needs to urgently find ways to claw back forex earnings from the traditional copper exports after awarding of heavy tax incentive. There is need to prioritize and immediately reopen Kasenseli gold mine and re-energize the BOZ gold alternative reserves build up as well as find innovative ways to recapitalize and resume production at Mopani and KCM.