ZAMBIA’s gross international reserves increased to US$1.9 billion in December last year from $1.8 billion in November.
The rise in the reserves followed the receipt of budget support from the European Union of $43.0 million, Poverty Reduction and Growth Facility (PRGF) loan receipt from the International Monetary Fund (IMF) of $80.0 million and Bank of Zambia (BoZ) purchases of foreign exchange from the market of about $15.0 million.
BoZ Governor, Caleb Fundanga said in Lusaka yesterday that the Net Foreign Assets (NFA) increased by 8.6 per cent during the fourth quarter of last year, contributing 5.2 per cent points to broad money (M3) expansion, mainly due to the rise in gross international reserves.
The NFA increased by 60.0 per cent compared with the 80.8 per cent recorded in September 2009, largely on account of the 6.6 per cent increase in the actual gross international reserves in the quarter under review.
Dr Fundanga said during a quarterly media briefing that during the fourth quarter, the Kwacha lost some of its previous quarter’s gains and posted marginal depreciations against the major currencies.
Accordingly, the Kwacha recorded 0.6 per cent depreciation against the US dollar mainly on the back of a stronger import demand for oil and agricultural inputs.
Similarly, the Kwacha made losses against the Euro, pound sterling and the South African rand.
Preliminary data shows that Zambia recorded an overall balance of payments (BoP) deficit of $113.1 million during the fourth quarter of 2009 compared with a surplus of $661.1 million recorded the previous quarter.
This was on account of unfavourable performance in both the current, capital and financial accounts.
Dr Fundanga said the overall financial condition of the banking sector during the fourth quarter was satisfactory.
The banking sector was adequately capitalised and the liquidity position remained satisfactory, while there were modest improvements in asset quality and earnings performance compared to the previous quarter.
On the inflation outlook, he said inflationary pressures in the first quarter of 2010 were expected to originate mainly from the recent 15 per cent adjustment in the prices of petroleum products in line with the rise in oil prices on the global markets.
Inflationary pressures were also expected to originate from price increases on services and manufactured goods in response to upward adjustments on water tariffs implemented in December 2009.
Other pressures would come from seasonal price increases on maize grain, various fresh vegetables and fish largely due to low supply of the commodities.
However, Dr Fundanga said Inflationary pressures would be moderated by the relative stability in the exchange rate of the Kwacha against major foreign currencies.
And Dr Fundanga reminded the public that bouncing cheques on an insufficiently funded account was a criminal offence under the National Payment System Act.
He said new directives regarding the bouncing of cheques offence would be issued in the first quarter of this year.
Meanwhile, the mining tax revenues paid in US dollars through BoZ stood at $77.7 million last year from $128.4 million in 2008.
The sales of foreign exchange to the market stood at $739.2 million in 2009 from $1,232.0 million the previous year.
[Times of Zambia]
Economists in-charge from Nkwazi, MoFNP to BOZ.
Reserves for what? emergencies? We are in an emergency, gents. Shall we that money to cushion the fuel prices and other basic human living conditions.
Or is the money for Vasco Da Ruphiah.
The accumulation of foreign reserves is an inefficient way of managing finances. By accumulating ‘cash’ the Central Bank is being very conservative and leaves the country vulnerable to fluctuations in the values of the foreign currencies, a factor that is likely to occur if you look at the state of most western economies.
in the post they say fuel hike will fuel inflation here you cheating us with some increase that does not affect an Ordinary Zambian malabish
The accumulation of reserves is meant to stabilize the currency and account for Govt’s debt burdens. Most business on the international scale is done in US Dollars and not Zambian Kwacha’s. Malawi is complaining about a foreign exchange shortage it has been facing for some time now.
With the current reserves, Zambia is unlikely to face the foreign exchange shortage problem and can now issue bonds on the international financial markets as its default risk is lowered due to the accumulated reserves.
Mr Capitalist, yes the accumulation of reserves is important for foreign transactions, but there are other more productive instruments that the bank can invest in like gold and financial instruments which has recorded major gains in value compared to the dollar, pound or euro which have depriciated in value over the last 18 months.
The Expatriate
The US Dollar still remains a reserve currency though. It is widely accepted anywhere you go. Adopting Gold might cause foreign exchange ripples when it comes to ZMK and USD because it will involve dumping the dollar from the way I view it. Sure having some Gold reserves would be good but in terms of stabilization, the Dollar still remains the best way to go IMO.
I also don’t see why a Central Bank should consider buying Financial Instruments unless it is for the effect of increasing the money supply which would not be a very good idea.
Also investing in international Financial Instruments by BOZ would not be a good idea this year due to the increase in oil prices. This will involve more buying of oil and a significant reduction in reserves due to investment in International Financial Instruments would also affect the stabilization of the currency.
Mr Capitalist, the US dollar has depriciated over the last 18 months, so that if you want to make a settlement within the eurozone for example, you have to pay more dollars. Gold has appreciated in value in comparison so that if you had bought gold a few years ago, it would be worth more now. You can sell it as and when you need to make payments in USD for more than the original worth. Financial instruments including government bonds of western economies have a higher yield rate as well. At the moment, the bank has money in an account, and the money is not performing. It inefficient management of reserves.
The Expatriate
If you take out money from the reserves and put them in Government bonds in lets say…USA, you would have significantly reduced the amount of foreign currency in the economy. This will result in less money for forex transactions and a stronger dollar against Kwacha which in turn will result in instability of currency. There is also more money needed for oil purchases due to the increase in the price of oil on the international markets. Buying Financial Instruments of other countries is counter productive as it will lead to an unstable Kwacha. What we want is a stable Kwacha.
On the issue of Gold, it fluctuates heavily. The dollar will become stable soon as plans for bailed out banks to repay their bail-outs are underway.
Anyway Mr. Expatriate, I enjoyed this argument with you and I guess for now we have to agree to disagree because it is late here and I have to go sleep.
Have a good day/night.
The causes of this increase have not even got a trade surplus component in them . The $80 million PRGF loan from IMF will not remain in reserve or it shouldn’t (for obvious reasons)……
.So nothing to shout about.
#12 Lord Smith.. Smart man.. Able analyse & pick out the cardinal points. Thats the only part of the story that I read and saw point in proceeding with the rest.. Dismal performance again.. or should I say non-performance by Zambia, again.. Why even report this story when Trade Surplus and manufacturing growth Indices (production) is all we are interested in ? I would have been ashamed and stuttered reporting this if I was Musokotwane. But look at Mr Capitalist. Off topic .. all over the planet..
Good to hear. Building a good monetary base.
Why should $80m loan be an increase in reserves. Beats me. This is borrowed money. $43m is budget support from the EU. This is aid money. Do we include aid and grants in our reserves? The rest, $15m are forex purchases.
Bankers all over the world live in their on world. That’s why they caused teh global recession. Their language is weird. We should get serious and be business minded. Let’s talk about real reserves, like making profit from a good business and taking some of that to reserves.
This is laughable and I feel embarrassed that the whole lot of Zambia has reserves less than Oprah Winfrey’s fortune! No wonder the whol parliament can be bought by some fellow from Russia in order to keep queit about the sale of Zamtel! And what is even more embarrassing is that the reserves are not even banked in Zambia ( Check the Sterling Agreement). Which ***** will be celebrating $80 million when we let over $1.5billion worth of copper slide out of our country with less that 1% tax in 2007?!
Dr Fundanga was responding to questions from Journalists in Ndola yesterday where he attended a breakfast meeting between a Finnish business delegation and the Copperbelt business community at Mukuba Hotel organised by the Zambia Development Agency. Dr Fundanga was responding to questions from Journalists in Ndola yesterday where he attended a breakfast meeting between a Finnish business delegation and the Copperbelt business community at Mukuba Hotel organised by the Zambia Development Agency. For more info http://www.prime-targeting.com/do-you-agree-that-the-pound-is-healthier-than-it-is-assumed/
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