Following the press statement by the President’s press secretary, Isaac Chipampe, announcing the dismissal of Bank of Zambia Governor, Dr. Denny Kalyalya and his consequent replacement in Mr. Christopher Mvunga, we as Civil Society Organizations wish to highlight the economic implications such a change may bring, more so, given the time at which it has been effected.
From the onset, this is quite unusual, and we are convinced that it is more of a political decision than an economic one. While it is our sincere hope that the appointment of Mr Mvunga will not diminish the confidence some of Zambia’s strategic partners in the international and local community have, we feel there is a real risk of this being the case. As CSOs, we wish to emphasize the importance of the Central Bank, which is responsible for overseeing the monetary system of our country , along with a wide range of other responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation, and full employment in as far as prudent management of the economy is concerned. This is something we think the Bank of Zambia has tried to do for some time despite there not being complementary efforts on the fiscal side of things.
The changes at the Bank of Zambia raise important implications on macro-economic stability. In the first instance, we expect a negative response from the financial markets as this has raised uncertainties in the markets. The exchange rate, which by 14:25pm on Monday 24th August had already depreciated by 0.7% to a record low of K19.20 per US dollar, is expected to continue on a depreciating trend thereby exerting upside pressures on the inflation rate, leading to a surge on our debt repayments as we will then be required to pay more (in Kwacha terms). For instance, as of Monday 24th August, the yield on the nation’s $1 Billion of Euro bonds due in 2024 had already edged up by 190 basis points to 30.34%- the biggest jump since April.
Furthermore, we expect a negative effect on investor confidence as this change is likely to send a signal of perceived non-autonomy of the Central Bank. This may inevitably result in a reduction in foreign exchange in-flows and negatively impact on our international reserves. The reduction in the confidence from the international community further compromises our position and chances of accessing the bail-out package that we have long been asking for from the International Monetary Fund (IMF).
It is our considered view that the recent measures the Bank of Zambia was undertaking were appropriate, and looking at the deteriorating economic situation in the country, these efforts needed to be complemented by instilling discipline in the way we spend resources. This was going to be key in restoring macroeconomic stability.
While we recognise the fact that the Head of State has the prerogative to dismiss his appointees without giving any reasons, it is our considered view that given the strategic importance of the position of Bank of Zambia Governor, effecting a change at that level without giving any reasons is counterproductive to our aspirations to address the economic challenges we are currently grappling with as a country. We therefore wish to appeal to President Lungu to show more regard to the Zambian public and demonstrate transparency by going public with the reasons why Dr Kalyalya has been dismissed. We are convinced that this will not only put a stop to the speculation and innuendos that have arisen over this matter, but also help to quell the uncertainties that we expect to arise within the financial markets.
Going forward, it is our recommendation that the incoming Governor should not take a radical shift in terms of overall policy direction from what the Bank has been doing under his predecessor as this will exacerbate the effects of the implications highlighted above. We are also alive to the fact that the outgoing Governor was consistent in calling for fiscal discipline and other fiscal strategies seeking to reduce the fiscal deficits. It is our recommendation that the incoming Governor should continue to speak the same language in this regard, as the need for fiscal consolidation, perhaps now more than ever, cannot be over-emphasized.
We further urge the incoming governor to insulate the announced stimulus package from being used for political expedience as this will result into the initiative not achieving its intended purpose.
Nalucha Ziba – Executive Director, Action Aid Zambia
Isaac Mwaipopo – Executive Director, Centre for Trade Police and Development
Chenai Mukumba – Executive Director, Consumer and Unity Trust Society
Maurice K. Nyambe – Executive Director, Transparency International Zambia
Leah Mitaba – Executive Director, Zambia Council for Social Development
