By MUBANGA LUCHEMBE
The continued depreciation of Zambia’s currency, the Kwacha, against major convertibles is causing serious problems for small and medium businesses in the country.
The depreciation has resulted in higher operational costs, making it expensive to run a local business. This negative trend is impacting businesses at all levels, but it’s particularly affecting small and medium-sized enterprises (SMEs) that employ large chunks of workers estimated at over 90 percent outside the formal sector.
During the past week, the Kwacha’s exchange rate was K21.70 to the US Dollar, and unexpectedly still freefalling.
To address the issue, the Bank of Zambia recently increased the Statutory Reserve Ratio and the Monetary Policy Rate in an effort to stabilise the exchange rate.
And Finance and National Planning Minister Situmbeko Musokotwane explained that the move was aimed at helping reduce demand for the Dollar so that the Kwacha could stabilise.
Meanwhile, there are concerns about what would happen to the Kwacha if the country’s debt-restructuring efforts fail.
According to Dr. Musokotwane, the long-delayed debt-restructuring conclusion is one of the main reasons behind the Kwacha’s depreciation.
These comments contrasted with those from the Socialist Party leader, Dr Fred M’membe, who wondered what would happen to the Kwacha if the debt-restructuring failed.
Contradicting everything the government said to clarify the Kwacha’s foreign exchange predicament, Dr. M’membe counter-clarified, saying that Zambia’s debt wasn’t new, it hasn’t just arisen.
Despite this national debt-burden, the Kwacha was earlier appreciating. It even went as low as K15.89 to the US Dollar under the UPND administration. But currently, it has reached over K21.00 to the US Dollar under the same regime.
Not only that, outgoing World Bank chief David Malpass also urged international creditors to provide relief to Zambia, saying that he was “deeply concerned” about a stalemate in restructuring the country’s US$12.8 billion debt. He also urged that, Zambia needed bilateral creditors to reach an agreement on debt-treatment after restructuring options were presented by organisers of the so-called Common Framework and Paris Club in mid-January.
The agreement was needed for the IMF to be able to make its second-disbursement to the country. The World Bank chief added that, Zambia’s government has taken many decisive actions, now international creditors need to provide prompt debt-relief to maintain the Common Framework.
Zambia for more than two years has been in talks to rework US$12.8bn of external loans from Africa’s first pandemic-era sovereign defaulter.
It’s doing so through the Common Framework, a mechanism drawn up by the G-20 to bring together the six-decade-old Paris Club, which represents creditors in mostly developed nations, with newer lenders including China and Saudi Arabia for the first-time.
China – the largest bilateral creditor country to developing countries – has blocked progress on Zambia’s debt-talks with its call for loans from multilateral development banks and domestic creditors to be included in the country’s restructuring. The US and other countries have rejected such proposals.
A Global Sovereign Debt Roundtable convened by the World Bank, IMF and India as G-20 president, which held its first meeting in February, planned to meet again on April 12 during the IMF and World Bank spring meetings to look at ways to strengthen restructuring processes.
The World Bank is urging clearer timelines, a debt-service suspension by official and private sector creditors at the beginning of a Common Framework process, and other steps for nations in debt-distress, Mr. Malpass said.
He said there was urgency to act quickly, and the World Bank would do whatever it could to contribute toward a solution for these countries.
Beyond the Kwacha’s foreign exchange predicament, pressure has mounted on the UPND government amid an unprecedented socio-economic downtrend.
A top-10 global law firm has entered on the Savenda Group’s side and its founder Clever Mpoha in their dispute with the current Zambian government. According to the press release, the US-based firm of Eversheds Sutherland will be partnering with a well-known Dubai law firm to bring additional firepower to bear against the allegations being made by the UPND administration against the Savenda Group and its founder.
The current government has been under mounting pressure from a variety of sectors.
In an open-letter to President Hakainde Hichilema published in the local mainstream media, the Socialist Party spokesperson Frank Bwalya called on the President to change course and fulfill his promises to strengthen the economy amidst broken promises and essential commodities’ price increases.
In another move published last month, PF member Bowman Lusambo claimed that President Hakainde Hichilema promised to reduce the cost-of-living, but having failed to do so has lost his mandate upon which the people elected him.
The mounting pressure on President Hichilema’s administration highlights the challenges of socio-economic development in the country.
While the country’s UPND leader campaigned on a platform of change and promised to improve the country’s economy, many people are questioning whether he can deliver.
The impact of these issues on local businesses is significant, with many SMEs struggling to survive in the face of limited resources and competition from larger transnational companies.
With the right policies and support in place, Zambia has the potential to become a major player in the Pan-African economy and provide much-needed jobs and economic opportunities for its citizens. As the country faces increasing unemployment and the risk of losing vital businesses, it’s clear that urgent action is needed to stabilize the economy and prevent more damage.