Anthony Mulowa
23 October 2008
THE Government has attributed the sharp depreciation and increased volatility of the Kwacha in the last two weeks to three major factors, among them, the sharp fall in global commodity prices as a result of a slowing global economy.
Secretary to the Treasury, Evans Chibiliti and Bank of Zambia (BoZ) governor, Caleb Fundanga said during a joint Press briefing in Lusaka yesterday that the decline in copper prices had led to speculative currency withdrawals.
The Kwacha was yesterday trading at K4,300 to the United States (US) dollar compared to about K3,600 two weeks ago.
Mr Chibiliti said the price of copper had fallen by about 50 per cent from its peak of US$4 per pound in July this year.
Mr Chibiliti said the other factor was the increased uncertainty arising from this month's presidential election and the question of policy continuity by the new leadership, which was a usual phenomenon during such a period.
He said the third factor was the withdrawals by foreign portfolio investors in the Zambian Government and private securities on account of demand for liquidity and global risk aversions, which had created a heightened demand for foreign currency.
Withdrawals by foreign portfolio investors had this month shot up to as much as US$56 million when in normal circumstances it was $5 million or below.
Mr Chibiliti, however, said the Zambian financial system was not directly affected by the global crisis, as its exposures to international finances were limited.
"Preliminary assessments suggest that Zambia has not been severely affected by the crisis, as the Zambian banking system is not directly exposed to toxic international assets.
"However, the financial market has not been totally immune from the impact of the global financial end economic crisis," he said.
Mr Chibiliti said despite the projected slow down in the global economy and the fall in copper prices, the fundamentals in the Zambian economy remained strong.
He said exports were not likely to be adversely affected in the medium term, as many major investments, such as in the mining sector, had already taken place.
"Export volumes of copper are expected to increase, partially offsetting the projected decline in copper prices," he said.
Mr Chbiliti added that the Government viewed these events as a short-term phenomenon and was confident that in the long run, Zambia would continue to provide a strong and conducive environment for investors.
He said the Government continued to expect, based on preliminary estimates, that the economy would be on track to grow by six per cent this year.
He said the Ministry of Finance and National Planning and BoZ would continue to monitor and review developments closely.
Mr Chibiliti said the BoZ had enhanced its vigilance and interaction with the domestic financial system to ensure adherence to supervisory guidelines and enhance information flows between commercial banks and the Central Bank.
Meanwhile, the Government has opened a new mining office to handle the new licensing system and invited members of the public to take advantage of its open days to familiarise themselves with its operations.
Mines Permanent secretary, Leonard Nkhata said in a statement yesterday that the Mining Cadstre office is located at Exploration House opposite the Ridgeway post office and would have open days on Tuesdays and Fridays from 14:00 hours to 16:00 hours.
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