Mutati Advises On Economy, Kwacha Free Fall

Former Minister of Finance Felix Mutati has spoken out on the current state of the economy and rising prices of mealie meal.

His comments come following Government attempts to explain the depreciation of the kwacha as a result of the coronavirus pandemic.

According to Mutati Zambia’s debt servicing obligations are a major factor in determining the value of the currency, which reached an unprecedented low of K16 to the dollar last week making it the worst performing African currency. The Economics Association of Zambia President Lubinda Haabazoka has previously warned that servicing the debt would cost around US$800 million in 2019.

Speaking on what could be done to remedy the situation the former minister identified measures such as debt restructuring as being particularly important. External debt stock now stands at US$11.2 billion, up from US$10.2 billion in June 2019 and just US$1.9 billion in 2011.

He also advised Government to address the matter of Eurobond repayments ahead of the maturation of the first bond in 2022.

Mutati spoke of the need to re-engage the IMF. A programme has been under discussion, on and off, for more than five years, with the Government rejecting an initial proposal in 2015, before returning to the negotiating table.

The stumbling block appears to be concerns regarding debt sustainability, which has been a long-running concern on the fund’s part. In 2018 the IMF warned that discussions could only progress once Zambia had implemented credible measures to manage the country’s growing debt burden.

Mutati further stressed the importance of stimulating activity in the mining sector, which is currently subdued.

“We will be lucky to hit 800,000 tonnes this year, unless we do some intervention. Once we increase production, the ability to earn forex increases and it will have an impact on the exchange rate. The exchange rate impacts on all of us,” he stated.

“There is need to have a conversation with the mining sector because they generate 60 per cent of our forex revenue and we can’t underplay their significance,” he added.