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Mutesa attributes depreciation of kwacha to poor planning

Mutesa attributes depreciation of kwacha to poor planning
Written by Florence Bupe
Friday, February 27, 2009 9:01:53 AM

UNIVERSITY of Zambia (UNZA) Development Studies lecturer Dr Fred Mutesa has attributed the persistent depreciation of the kwacha to lack of long-term economic planning.

In an interview, Dr Mutesa said the country was unprepared to deal with challenges affecting the financial markets and the economy in general because it lacked strategies to address the problem.

The kwacha has depreciated tremendously over a short period to the current average trading rate of around K5,500 per US dollar.

“The main problem is that we have allowed ourselves to be ill-prepared for such eventualities. We have only one main source of export revenue, which is copper, and once copper prices slump, there is a decline in incoming revenue,” he said.

Dr Mutesa advised that the country should desist from being reactive and adopt a proactive approach in addressing economic challenges.

”We should stop reacting to crises and be more long-term oriented in our planning, and this can be done particularly by taking the issue of diversification of our export basket more seriously,” Dr Mutesa said.

“We also need to increase our degree of self-sufficiency in the economy. If we continue importing, we put more pressure on the kwacha.”

And Dr Mutesa said the Bank of Zambia’s intervention in the foreign exchange market had a limit.

“There’s a limit to what the Bank of Zambia can do. We can put controls, but if we do it, we’ll have people queueing for currency purchases, this has its own downs,” Dr Mutesa said. “If the Central Bank puts in place tightening measures, we should expect shortages and smuggling of currencies. We cannot afford to have measures such as South Africa’s; they will not work for our economy.”

Dr Mutesa said there was panic buying by some market players, especially importers, in a bid to protect their businesses.

He said although the depreciation of the local currency was viewed to have “winners” and “losers”, the case was not so under the prevailing trends.

“The devaluation of the currency is meant to have losers and winners… in our context, one would expect non-traditional exporters to gain, and if they gained, there would be some mitigation against losses in other areas of the economy. But what is happening is that because the response of exporters depends on other factors, the devaluation of the kwacha is just resulting in inflationary pressures with no real winners other than speculators,” said Dr Mutesa.

Labels: FREDERICK MUTESA, INFLATION, KWACHA

posted by MrK @ 9:02 AM