Sunday, October 25, 2015

(THE POST ZM) Policy analyst calls on govt to establish metals reserve bureau

COMMENT - Just reducing dollar dependency is not exactly what I had in mind when using metals reserve as the basis for Local Currencies, however the idea is applicable. What it should not become, is a plaything for the same individuals who dully maintained that debt at 40% of GDP is of 'internationally acceptable standards' and other such nonsense. If you have the choice between a Windfall Tax that is free of interest, and a Europbond of very high interest... the Finance Minister chooses the high interest rate option? What is going on?

Policy analyst calls on govt to establish metals reserve bureau
By Stuart Lisulo |
Updated: 24 Oct,2015 ,10:00:00

THE government should consult the IMF and World Bank to develop a metals reserve bureau that would help reduce dollar dependency and insulate Zambia against external shocks, says Humphrey Mulemba.

And the Zambia Institute for Policy Analysis and Research says the government needs to act swiftly to manage the country’s public debt, which has doubled to over 40 per cent of GDP in five years.

Commenting on Zambia’s risk of falling into debt distress owing to the increasing public debt position as pointed out by the IMF, Mulemba, an independent policy analyst, stated that the government needs to take an innovative approach in seeking external financing that would help reduce US dollar dependency, currently hinged on copper exports, to repay the country’s mounting debt stock.

The government’s issuance of a US$1.25 billion Eurobond in July pushed the country’s external debt stock to over US$6 billion, shifting Zambia’s position closer to the suggested threshold of 40 per cent for developing countries.

“An innovative idea is to seek the Bretton Woods institutions’ help to develop a metals reserve bureau alongside the sinking fund proposed in the 2016 budget; this is to help Zambia reduce dollar dependency. The idea of the metals bureau is to ring fence the forex denominated debt only against the basket of metals as opposed to it being extended to the performance of the kwacha,” he stated in response to a press query. “The reason being that metals are dollar-based and hold more currency equivalent stability than the Zambian kwacha.

Mulemba said the metals bureau could be developed through the IDC and ZCCM-IH, which would help in debt repayments and insulate against external shocks.

“The pool of metals chosen will be based on the comparative advantage of Zambia and can be achieved through the IDC in collaboration with ZCCM-IH. This will help cushion the current situation and further develop a rigorous system that will be able to sustain future shocks as experienced in the recent past,” he added.

And Mulemba, formerly a policy analyst for the Civil Society for Poverty Reduction (CSPR), warned that the consequences of continued external borrowing amid a devalued kwacha would make repayments more expensive.

“With a depreciating kwacha, the payment rates in forex for international loans will become more and more expensive, potentially eroding the financial base of the country to fund development projects,” said Mulemba.

And ZIPAR executive director, Dr Pamela Nakamba-Kabaso, stated in a press statement that the government needed to urgently act to manage the country’s mounting public debt stock.

“The last 5 years have seen the debt-to-GDP ratio grow from 20 per cent to 41 per cent of GDP in 2015, which is just about the sustainable threshold of 40 per cent of the GDP,” stated Dr Nakamba-Kabaso in the local think-tank’s reaction to the 2016 national budget.

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