Revoking SI33, 55 welcome measure
Published On March 21, 2014 » 3842 Views» By Davies M.M Chanda » Opinion
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THE local currency, the Kwacha has been in a free fall for some time and it did not augur well for the stability of the Zambian economy.

 

It has been quite evident from the rapid depreciation of the Kwacha that some policy decisions had displeased investors in the mining sector and other industries who had raised complaints about some policy decisions, namely Statutory Instruments (SIs) number 33 and number 55.

 

Against this background, it had become imperative for Government to revisit some policy decisions and take remedial measures to arrest the situation before it got out of control.

 

We, therefore, welcome Finance Minister Alexander Chikwanda’s decision to revoke SI33 and SI55 as one possible measure to rescue the Kwacha.

 

SI33 of the Bank of Zambia (Currency) Regulations was signed by Mr Chikwanda on May 7, 2012 and this, in part, prohibited persons from quoting, paying or demanding to be paid or receive foreign currency as legal tender for goods, services or any other domestic transactions.

 

The following year, on July 1, 2013, Government introduced SI55 which empowered the Bank of Zambia (BoZ) to monitor cash inflows, outflows and international transactions.

 

Under this SI, BoZ has been working with financial service providers, the Zambia Development Agency and Zambia Revenue Authority (ZRA), which was required to collect specified documents from importers and exporters above a specified threshold.

 

Meanwhile, persons making certain remittances and those contracting external loans were compelled to submit these to ZRA.

 

Periodic monthly returns have had to be submitted by financial service providers to the Central Bank.

 

All these did not go down well with multinational companies, especially those in the mining sector which dominate the Zambian economy.

 

Western countries, some of which these firms originate from and are Zambia’s cooperating partners, were also opposed to the two SIs.

 

It is clear that the requirements of the SIs and the consequent opposition they attracted were some of the major factors in the loss of value of the Kwacha. This in turn was going to have an adverse impact on all sectors of the Zambian economy.

 

Already, the noticeable hike in the prices of goods is being attributed to the fall in the value of the Kwacha.
There are reports of some traders saying they intend to increase prices of commodities they deal in because of the fall in the value of the Kwacha.

 

Government is, therefore, in order to come up with these tangible measures because with the ongoing loss of the value of the local currency, it could have been difficult for the country to sustain its impressive record of macro-economic stability, while the single-digit inflation so far achieved was soon going to be in double digit.

 

Only a few years ago, in the post-privatisation period, Zambia was considered the sixth best country in Africa to do business, the ranking that attracted significant Foreign Direct Investments, which has been increasing year after year.

 

Official Development Assistance had equally been increasing. Coupled with the Highly Indebted Poor Countries initiative and the Multilateral Debt Relief Initiative, these reduced Zambia’s debt servicing obligations and bolstered the Zambian economy.

 

Of course external public debt has been steadily increasing since then, but the ongoing efforts to expand the domestic revenue base through effective taxation policies, which donors have been supporting, can help arrest this trend as well.

 

Having revoked the two SIs, it remains to be seen whether this will reverse the ongoing devaluation of the Kwacha.

 

As the Finance Minister says, there is also need to increase Zambia’s resilience to shocks by accelerating the economic diversification from copper mining.

 

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