Cash-strapped Zambia Inaugurates Central Bank Governor, with Mission to Balance Economic Growth & Debt Servicing
The new Governor of the Central Bank of Zambia has promised to uphold the personality of the body following rising concerns that his appointment could compromise the Bank's independence.
President Edgar Lungu appointed his close associate, Christopher Mphanza Mvunga after inexplicably sacking Denny Kalyalya on August 22 in a move criticized globally as an infringement on the independence of the Bank.
The IMF said in the wake of Kalyalya's sacking that “The macroeconomic stability that most developing countries have enjoyed in recent years has greatly relied on the much-improved effectiveness and increased independence of central banks”.
“It is imperative that central banks’ operational independence and credibility is maintained, particularly at this critical time when economic stability is threatened by the Covid-19 pandemic,” the IMF added.
In efforts to reassure critics, the new Central Bank Governor says he will uphold the independence of the Bank in respect of the existing laws.
“I would like to assure all stakeholders that the operational independence of the Central Bank will be retained,” Mr. Mvunga told media after he was sworn in.
“It will be in line with the relevant legislation such as the Bank of Zambia Act and also in line with the international best practice,” he added.
Meanwhile, President Lungu has challenged the new Central Bank Governor to “redouble efforts” and work with the Finance Ministry to achieve stability in the Kwacha-the worst performing currency in the continent.
“At the same time, the Bank of Zambia must continue to review and strengthen policies, where appropriate, to improve performance and ensure that the financial sector remains stable while inflation is brought back to the single-digit range over the medium-term,” the President said.
Lungu’s request comes as Africa’s second-biggest copper producer struggles to repay more than $11 billion in government debts.
The government has already called on its creditors to suspend interest-payment for six months, and the country’s bondholders on October 20 will vote on that possibility. Many creditors have already hinted they will not go with the proposal.
The Zambia currency-the Kwacha has weakened 30% against the US dollar and 34% versus the euro this year.
The economic headwinds are worsened by the Covid-19 pandemic, and Lungu says it has had “a huge impact on the economy, including significant contraction in economic growth, high fiscal deficits, high inflation and a weakening exchange rate. Additionally, these developments also pose a threat on financial system stability. These challenges, notwithstanding, I note that the Central Bank has taken measures to mitigate the situation”.
Mr. Mvunga faces the challenges of ensuring inflation rate which according to the Zambia Statistic Agency monthly bulletin for Septembers 2020 stands at 15. 7 per cent compared to 11.2 in August 2020.
The Central Bank thus has the task of translating the USD5.99 billion 2021 national budget dubbed “Stimulate Economic Recovery and Build Resilience to Safeguard Livelihoods and Protect the Vulnerable” into visible results.
It is a theme that resonates with the Jesuit Centre for Theological Reflection (JCTR), an organization that largely interacts with the grassroots and produces the monthly basic needs and Nutrition basket.
In a statement to Timescape Magazine, the Catholic Organization indicated that overall, the suggested interventions to stimulate economic recovery and build resilience to safeguard livelihoods and protect the vulnerable are somewhat contradictory as far as addressing key macro-economic issues.
“The scenario of a widening fiscal deficit, inflation that has been on the rise in recent times, Kwacha depreciating by over 41% as at September 2020, constrained domestic resource mobilization and indeed the weakened stimulation of the domestic economy presents a gloomy picture…’’ the statement reads.
What is left to be seen now is how the new Governor’s heavily vaunted knowhow helps Zambia walk the thin line between servicing a crushing debt burden while meeting the development needs of the various sectors of the economy.