By KENNEDY MUPESENI –

THE Policy Monitoring and Research Centre (PMRC) wants Government to expedite the establishment of  sovereign wealth funds to avoid future negative adjustments when commodity prices drop unexpectedly.
In its  latest policy analysis dubbed ‘Understanding Currency Dynamics’ the research centre said there was need for the Government to speed up the implementation of an effective protective mechanisms such as sovereign wealth funds.
“Management systems, fiscal rules and fiscal stabilisation mechanisms like sovereign wealth funds demonstrate how these mechanisms can be critical tools for avoiding negative adjustments when commodity prices drop suddenly,” the PMRC said.
Zambia’s neighbours have established sovereign wealth funds. In 2012, Angola started a US$5 billion sovereign wealth fund to invest in agriculture, mining, infrastructure and real estate, cash, bonds and equities.
The Luanda-based fund was aimed at diversifying the economy away from oil.
Similary, Zimbabwe plans to establish a fund, which would be financed by mining royalties and special dividends on state mineral and metal sales, according to a draft of the sovereign wealth fund of Zimbabwe Act.
Head of monitory and evaluation Salim Kaunda stated in the same policy analysis that those examples justify why Zambia should focus on the wealth funds as they tend to be beneficial especially in resource mobilisation.
On the currency, Mr Kaunda said the way to make a currency stronger was working on the core fundamentals underlying the currency such as improving the scale and scope of reach.
He said others should be creating a forward expectation of relative strength compared to the things a currency was being traded against.
“In particular, currencies are simply alternatives for value and the relative strength or weakness of currency is very much tied to the forward expectations of the economy it represents,” Mr Kaunda said.
He said if monetary supply was constant, and the forward economy strengthens in relative terms, then the currency would be stronger.