Stakeholders reject dedollarisation policy by Bank of Zambia
The Bank of Zambia (BoZ) is considering reintroducing Statutory Instrument (SI) number 33, which prohibits quoting goods and services in foreign currency.
However, this policy has raised significant concerns about its potential impact on Zambia’s economy.
Bank of Zambia held a stakeholders’ engagement that attracted mainly foreign and foreign owned business entities operating in Zambia.
Bank of Zambia says that dedollarisation is required to facilitate the transmission of monetary policy into a real economy.
The Business Coalition Taskforce has rejected the policy and proposed for yhe policy to be implemented after the 2026 elections and has provided the following arguements.
Concerns with SI 33
1. Current Economic Volatility
2. Mandatory conversion of contracts
3. Ambiguity in definitions
4. Impact on FDI and Local Investments
5. Compliance challenges
Recommendations
• Continuation of Existing Contracts: Existing contracts should remain unaffected, amending them will destabilize sectors such as agriculture (equipment
and inputs), financial markets (re-insurance and dollar liquidity),real estate markets etc;
• Delay Decision Until Post-2026 Presidential Elections: Postpone reintroduction of SI 33 until after the 2026 presidential elections to ensure that the economy attains stability;
• Assessment of Economic Performance:
Delay will provide time to retain economic growth, lower inflation, stabilise the foreign exchange rate, reduce government borrowing, increase export earnings, reduce GRZ borrowing;
• Debt Restructuring and Access to Capital Market: debt service is commencing and will impact reserve accumulation and FX stability.
The SI will worsen FX volatility;
• Impact on Various Industries: Consider impact of SI 33 on industries, manufacturing . Providing e exemptions for tourism, agriculture, and property sectors would be alternative but negates the main aim of the SI if implemented hurriedly;
• Reduction of Capital Costs: BoZ should reduce the cost of capital to enable borrowing in ZMW and decrease USD demand as part of the preps for the SI; and
• Phased Implementation of Legislation: Enact legislation in phases, including a grace period for adaptation and stakeholder guidance, followed by enforcement with feedback adjustments.
The premise of dedollarisation is misplaced and should be rejected for making people poorer
1. Monetary policy is ineffectual because our inflationary shocks are not demand driven
nor credit driven rather structural and systemic. Demand is already depressed and the economy is weak and where government has crowded out ordinary borrowers
2. The use of USD is a stabilising factor providing safe haven from Kwacha volatility for payments and asset values. It is our reserve currency for this reason and the same holds true for wealth creators when faced with ZMW depreciation of 98% from its value in 2019
3. USD dominates our trade and productive sectors of our GDP. Replacing it as a store of
asset value and payments is hyper inflationary, will cause capital flight, and
disincentivise future investments.
4. A threat of criminal penalties is unheard of in dedollarising countries and disincentives
travel and investment. It is not a civilising policy
5. The economic rationale for dedollarisation policy is not supported by precedents in Africa or elsewhere.
There are instead examples of dollarisation or adoption of a third country’s currency. If it is being done for ideological reasons, then BoZ will be deliberately making people poorer.