Friday, April 06, 2012

Sampa foresees stronger kwacha

Sampa foresees stronger kwacha
By Chiwoyu Sinyangwe
Fri 06 Apr. 2012, 13:55 CAT

THE anticipated inflow of about US $935 million in Zambia mid this year is expected to reverse losses suffered by the kwacha against major convertibles in the last 12 months, says finance deputy minister Miles Sampa.

The kwacha last year posted a nine per cent depreciation against the US dollar and the local currency in the first quarter of this year lost a further three per cent to trade around K5,300.

Analysts blame the local currency's loss on unclear and uncertain policy statement by the PF government in the aftermath of their defeat of the MMD in the September 2011 polls, coupled with the current economic malaise in the Eurozone which is driving global demand for US dollars - a safe haven.

Sampa said a expected surge in dollar inflows into the country by June this year from a combination of debt and grants would help to prop up the domestic currency.

Sampa said the US government's Millennium Challenge Corporation (MCC) approved US $354.8 million compact aid to address water and sanitisation sector in rapidly urbanising Lusaka and the planned US $500 million Eurobond mid this year would help to boost kwacha's performance against major convertibles.

Sampa, who is also Matero PF member of parliament, said the US $50 million Line of Credit from India for the construction of about 650 rural health posts throughout the country and the Chinese government's recently pledged US $35 million for various projects for immediate implementation would also increase foreign exchange inflows into Zambia.

"With these additions on the supply side while demand has remained constant in the absence of maize importation, basic economics entails that the Zambian kwacha will soon regain the six per cent lost late last year and in the first quarter of this year," Sampa said in an interview.

He said the large foreign exchange inflows indicated huge confidence the international community had in the PF government as was imprinted by Standard and Poors' that maintained a B+ grading for Zambia's current future outlooks.

"Some arguments on the drop in the levels of portfolio investment into our domestic debt are baseless," Sampa said.

"Foreign investors in our economy in our money market are generally loyal to pricing and exchange rates. When Treasury Bills rates drop, and exchange rate fluctuates, these cash money investors always flee until the government increases its interest rates for domestic debts. In the meantime, our priority has been to reduce commercial lending rates, higher treasury bills are inversely related with that objective. On the other hand, as soon as the kwacha starts to appreciate as anticipated, these flight investments will be back in the country faster than they declined."

Separately, BoZ assistant director of market operations, Jonathan Chipili, said foreign holdings of Zambian debt have fallen to their lowest since 2005, reflecting uncertainty over the direction of policy following elections last year and the spillover from the global financial crisis.

Chipili said BoZ also wants to consolidate the 170-plus bonds in circulation to spur trading in the secondary market.

He said offshore investors' holdings of ambian government bonds are less than five per cent of outstanding debt, the lowest proportion since foreigners were first allowed in to the market seven years ago. The participation of foreign investors in our securities market has reduced, even prior to the elections," Chipili was quoted by Reuters.

"They want to be sure how the government is going to steer its policy."

And Sampa said the government was confident to grow the local economy above the current average 6.7 per cent.

"In the medium to long-term, we are determined to keep inflation in the single digit levels and as we create employment, we are confident to grow the economy to unprecedented levels of double digits from current median of around 6.7 per cent," said Sampa.

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