Fall in commodity prices hurt Zambia’s foreign reserves

A senior Zambian government official said the fall in commodity prices on the international market has affected the country’s balance of payments, resulting in reduced foreign reserves, the Zambia Daily Mail reported on Friday.

The Balance of Payments (BoP) encompasses all transactions between a country’s residents and its non-residents involving goods, services and income; financial claims on and liabilities to the rest of the world and transfers such as gifts.

Minister of Finance Alexander Chikwanda said the reduction of foreign reserves has made it difficult for the country’s central bank to cushion the falling local currency, the kwacha, which has depreciated significantly.

“The country’s reserves are not something to write home about as they are reducing, hovering around to and half months of the import cover. This is why we see that the capacity of the central bank to intervene is becoming difficult because the reserves position leaves much to be desired,” he was quoted as saying by the paper during a Zambia Finance and Investment Conference.

He said prudent intervention in the market will be required in addressing the falling reserves and exchange rate.

Zambia’s over-dependence on copper has resulted in Africa’s second largest copper producer being hit by the dwindling growth in the Chinese economy which is the main consumer of copper, a move that has resulted in local currency depreciating and reaching an all-time low of 9 kwacha to a U.S. dollar.

Copper accounts for about 70 percent of Zambia’s foreign exchange earnings.

Meanwhile Denny Kalyalya, the head of central bank also confirmed that the narrowing balance of payments has constrained the bank’s capacity to build foreign reserves resulting in the volatility of the local currency.

The central bank chief said the balance of payments was on the negative owing to the fall in commodity prices on the international market.