BUUMBA CHIMBULU writes
THE Kwacha is expected to close this year on a relatively weaker note as the Bank of Zambia (BoZ) is expected to ease its intervention in the market.
Easing interventions in the market by the Central Bank will lead to Kwacha weakness into the first half of 2022, says First National Bank (FNB) Africa Economist, Daniel Kavishe.
“On currency, FNB forecasts USD/ZMW to close 2022 relatively weaker. Key to currency developments in 2022 will be the extent to which the Central Bank will still actively support liquidity in the market,” he said in his analysis on the Zambian economy.
Furthermore, Mr Kavishe said, the finalisation of an International Monetary Fund (IMF) programme would also be crucial for the sovereign’s broader foreign exchange strategy.
“At this stage, we expect the Bank of Zambia to ease its intervention in the market, which should lead to kwacha weakness into first half of 2022.
“However, the finalisation of an IMF programme and the deployment of the necessary funds should see the currency reverse its course during second half of 2022,” he said.
Meanwhile, Mr Kavishe said the annual inflation started to show a disinflationary trend in the fourth quarter of 2021. FNB, he said, expected disinflation to continue as food inflation, a key protagonist of inflation.
Mr Kavishe explained that as currency depreciation decelerated and factoring in base effects, it was inflation was expected to average 14.8 percent in 2022.
On the fiscal side, Mr Kavishe acknowledged that Zambia was expected to start with the process of debt restructuring under the G20 common framework.
He stated that with the board approval of the IMF programme anticipated during the first half of 2022, the restructuring process could also be finalised then.
“The impact of the restructuring should give fiscal space for Zambia to consolidate expenditure over the next few years and likely reduce the interest debt burden,” Mr Kavishe said.