I have not so far commented on the NAPSA partial withdrawals. What was published under my name was Fake News.
Since it seems I am expected to say something let me do so.
An immediate impact on the government is that NAPSA is an anchor investor in government bonds. Therefore, releasing a projected 20 per cent partial payment of K11 billion will deprive NAPSA of the liquidity required to participate in government securities. Consequently, the government will be starved of the much-needed operational funding required to function. Note that in the April 27, 2023 bond auction of K2.6 billion, the government only raised K636 million, which was a massive under subscription. This can be partially attributed to NAPSA’s absence or its minimal participation in government bonds. Also, the uncertainty regarding debt restructuring has most likely resulted in non-resident bond players pulling out their investments upon maturity. This will certainly negatively impact the exchange rate further.
Added to this, inflation is now hitting double digits despite assurances by the Minister of Finance that it was unlikely to do so. Alas, the Statistician General announced on April 27 that the April inflation rate had reached 10.2 per cent.
All this points to a lack of comprehensive economic recovery policy/strategy by Mr Hakainde Hichilema’s UPND government. Instead of coming up with a master plan for the country’s economic recovery, it seems to be in “fire fighting mode”. Principally, it is focusing on day-to-day operational matters instead of formulating a strategic economic recovery master plan on how it will incentivise domestic value addition, bring Mopani and KCM on board, and come up with a clear policy on agriculture, among other things.
As long as the government remains operationally focused and not strategic, our economy is headed for doom.
The lack of consistent policies includes NAPSA partial withdrawals. On one hand, the Bank of Zambia raises the statutory reserve ratio in the market to stifle liquidity in the hope that the Kwacha depreciation can be tamed, as explained by the Minister of Finance; but at the same time there is a need to pump K11 billion back into the same market through partial NAPSA withdrawals, increasing liquidity in the market. So which is it to be? Decrease liquidity to tame Kwacha depreciation or increase liquidity to gain political mileage and appease the masses? What exactly is the policy direction?
Effectively, the fiscal side is cancelling out or neutralising the monetary policy measure. The right hand does not seem to know what the left hand is doing. Providing liquidity in an already starved market is a good measure to stir economic growth. Admittedly, inflation may be negatively affected, but we can live with that in the short term, but contracting the economy by reducing liquidity in the market is like removing blood from a patient. Achieving a single digit inflation number is meaningless if the patient dies. This is a very narrow perspective on how to solve the economic malaise of the country’s economy and grow it. A balance needs to be struck between creating an environment for economic growth while also managing inflation, and this may mean inflation trends outside the 6-8 percent target range for a while. However, once the economy starts to grow, inflation will drop as a consequence.
Fred M’membe
