Editor's Comment

Economic plans paying off

THE recently launched economic recovery plan is now bearing fruits, going by the exponential rise in value of the Kwacha.
The Kwacha has in the past week gained by 13 percent, making it one of the high risers in the world. Yesterday, it was trading at below K20 against the United States dollar. The key drivers of the exchange rate include demand and supply, inflation rate, foreign exchange reserves held by the central bank and general economic environment. On the demand side, the country has seen the reduction in imports, particularly food products and vehicle imports since the beginning of the year. The country has been recording trade surpluses, with the highest recorded at K10.16 billion in April 2021, though this marginally reduced to K6.92 billion in May 2021. Although the imports slightly increased from K11.59 billion (April 2021) to K13.09 billion (May 2021), the overall picture is still in surplus. Most chain store supermarkets are stocking local food products as per presidential directive. This is a golden opportunity for our farmers to accelerate their output and increase their revenues. It is encouraging that the country’s gross domestic product (GDP) has slowly started to grow, and in this growth, the agriculture sector has been a key contributor. From a negative GDP growth of 0.3 percent in June 2020, the country now stands at positive growth of one percent as of June 2021. Our farmers should indeed seize the opportunity. The appreciation of the Kwacha is also largely attributable to the trickle-down effect from the prices of copper, which has been bullish for a while. The Kwacha has also appreciated because of the release of hard currency into circulation by mining companies through payment of mineral royalties and quarterly obligations as at the end of June as well as earnings from those that exported their crop. The sharp appreciation also points to the monetary policy intervention by the Bank of Zambia. In May 2021, the Monetary Policy Rate was maintained at 8.5 percent despite the notable increase in inflation. The expectations of the Monetary Policy Committee with respect to the exchange rate have begun to materialise. The Kwacha has also benefitted from the tendency by commercial players to resist responding to trends that have an erosive effect of their bottom line. The local currency has also benefitted from attempts by businesses to use the gain to cushion losses caused by effects of COVID-19. The general rise of logistical costs on the international market during COVID-19 means that local businesses could not import as much as they did before the outbreak of the viral disease. There was reduced importation resulting from diminished trading activities caused by COVID-19, and this reduced the pressure on the Kwacha. Inflows of hard currency from those wishing to participate in the securities market, particularly treasury bills, have helped boost the Kwacha. As the Kwacha is gaining, the citizenry hope to benefit. The general benefit to citizens is that the cost of goods and services shall start going down. There is need to sustain the gains made by the Kwacha for the well-being of the economy.



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