By Staff Reporter
The Kwacha is in free fall because the administration is continuing to do the same things which are not working, says New Heritage Party leader Chishala Kateka.
In a statement to Daily Revelation Newspaper, Kateka, a specialist in financial matters, argues that despite the announced upward adjustment in the reserve ratio from 11.5 percent to 14.5 percent effective November 13, the local currency’s slide has persistent
“The Bank of Zambia has announced an increase in the statutory reserve ratio for both local and foreign-currency deposits, raising it by 3 percentage points to 14.5%, effective from November 13. This move is intended to alleviate the persistent foreign exchange market pressure and curb inflation,” Kateka stated. “The Zambian Kwacha exchange rate against major currencies seems to be in free fall. The Kwacha rate has continued with its slide even after the announcement. The exchange rate is generally a good barometer of the economy.”
She argued that her party has questioned the tools being used by the Bank of Zambia (BoZ) to forget both the Kwacha slide and inflation.
“We have tried these short term solutions before and they didn’t work. We need to learn from history and try something different. What was the effect of similar measures taken earlier this year in February? Have these measures helped in slowing down the devaluation in the past?” Kateka asked. “As we have indicated before, these measures are contractionary in nature and will not lead to the growth of the economy.”
She warned that the increase in the reserve ratio will siphon money from the country, with less money in circulation, which will not sustain enterprise development
“This will siphon money from the economy. With less money in circulation we shall not be able to achieve let alone sustain enterprise development. Cost of capital/Interest rates will go up. Our interest rates are already high. Pushing them higher will result in less local investments and consumption as a result of reduced liquidity and credit,” she stated.
She argued that the administration was not addressing the fundamental of why the economic growth is anaemic.
“Ride the inflation but support enterprise development (through various incentives) and so expand production. The volatility of the exchange rate is a symptom that the economy is not at full throttle. Ramp up our foreign exchange earning capacity through more exports (of increased production),” stated Kateka. “Ensure that the Dollars that we do earn through exports are brought back and accounted for in country. We have been saying this as New Heritage Party for the last two years. Reducing the issue of illicit outflows from the economy. Continuing to do the same thing to address the same problem will not achieve different results and therefore we must try and think outside of this box of BoZ tools.”
