Govt diverts $120m of borrowed money to ‘save’ kwacha

GOVERNMENT has injected US$120 million of the Eurobond money into the market in an effort to ‘save’ the kwacha from further collapse.

And President Edgar Lungu says no one feels the anguish of load-shedding more than he does.

Meanwhile, the Industrial Development Corporation has been tasked to raise US$500 million on the market as an initial investment in the energy sector and other infrastructure development programmes.

The local currency yesterday breached the K10 psychological barrier against the US dollar, the worst depreciation ever seen in the country’s history.

Briefing the press through his special assistant for press and public relations Amos Chanda at State House yesterday, President Lungu said following global economic developments over the past two weeks that have had adverse effects on many emerging and developing economies, including Zambia, the Treasury and the Central Bank had been closely monitoring developments to assess the result and impact on the domestic economy and the kwacha.

President Lungu said Zambia remained vulnerable to developments in the global economy, resulting in the deterioration of its balance of payments position, reflecting a widening current account deficit.

“Both traditional and non-traditional exports have declined significantly this year while imports have declined at a slower pace. As a result, the kwacha has been on a depreciating trend. The Treasury [has been] authorised to make all necessary assessments and recommend interventions that include release of money into the market. Between yesterday and Tuesday next week, there will be an injection into the market of US$120 million to pay for critical services such as health, education, water and sanitation and infrastructure related development.

This money has begun to be injected into the economy not directly into the Reserve Bank but to pay for services and this money is part of the Eurobond. Part of that money was converted into kwacha in order to pay kwacha-based invoices and Treasury is paying out those and the bulk of that money has gone into the Central Bank, so it is expected that as more dollars go into the economy, the kwacha would see an improvement beginning today (yesterday) and going forward,” he said.

President Lungu said the kwacha had come under immense pressure, largely emanating from economic and financial market developments.

He said the major factor had been associated with slow growth in China, the second largest economy after the US.

President Lungu said commodity prices, including copper, had dropped, with the Zambian economy impacted adversely through the decline in copper prices, which had fallen to around US$4,900 per tonne from above US$6,500 per tonne in 2014.

He said the movements in the exchange rate were sending clear signals that the economy needed an expanded export base and a reduction in unnecessary imports.

“In recent days, we have seen acceleration in the depreciation of the kwacha against the major currencies. The increased volatility appears to be reflecting market panic more than underlying fundamentals. I therefore deem the Bank of Zambia’s current monetary policy stance appropriate in anchoring inflation expectations. I have to this effect directed the Minister of Finance, who leads the fiscal policy team, to work closely with the Central Bank to assess additional market intervention measures to address the observed excessive volatility,” President Lungu said.

And on the current power crisis, President Lungu said the government was doing its best to reduce the suffering emanating from power shortages.

“This is what I think about every day and I want you to know, I want the nation to know that no one feels the anguish of these disruptions more than I do. My government is doing its very best to alleviate the suffering of our people,” he said.

President Lungu said he had sanctioned a series of remedial measures in the interim to mitigate the power shortage, among them the promotion of investments in the energy sector through the Industrial Development Corporation.

“It is necessary for both expedition and corporate culture to use IDC as a delivery vehicle,” he said.

President Lungu also directed Zesco Limited to identify and contract firms offering the lowest cost of generation for solar, which will allow the power utility to earn a profit considering the current retail prices of electricity until Zambia has rebuilt and owned its generation capacity to its actual base load.

Government has so far signed a contract with an Independent Power Producer (IPP), Aggreko, for the supply of emergency power of up to 148 mega watts with effect from September 1. It is currently negotiating with another IPP for an additional 150 MW of power.

And President Lungu said he regrets that there are citizens who have a field day when the country experiences difficulties which arise from external factors beyond his control.

“Nobody, let alone government, has magical solutions,” said President Lungu. “The challenges the country faces today are real and unprecedented and should not be reduced to mere political rhetoric. While I take the lead in providing decisive solutions to these challenges, I ask all Zambians, irrespective of political affiliation or any other interests, to unite and come together so that we, as a nation, can pull through these challenges.