Sunday 20, May 2018 by Jessica Combes

Zambia Central Bank Head faces another tough test


When Denny Kalyalya took leadership of the central bank in Africa’s second-biggest copper producer three years ago, the economy was on the brink of a crisis, with inflation rapidly accelerating to reach 22.9 per cent

Now that he’s had his contract extended for five years, a new set of problems are emerging.

Inflation is at the highest in more than a year. Foreign-exchange reserves have plunged to the lowest in eight years, and Zambia’s Eurobonds are the worst-performing in emerging markets in 2018. The kwacha has fallen almost seven per cent against the dollar over the past month to the weakest since December.

“If there’s one central-bank governor in the last 15, 20 years who I can give full kudos to, it’s Kalyalya. We have seen the monetary policy as a part of the equation really being praised, not only internally but also externally,” said Oliver Saasa, chief executive officer at Lusaka-based Premier Consult Ltd., said by phone, according to Bloomberg.

An email by the regulator on Thursday confirmed that President Edgar Lungu renewed the contract effective February, which will see Kalyalya, first appointed in 2015, oversee the nation’s monetary policy until at least 2023. The only other governor to serve longer was Caleb Fundanga between 2002 and 2011.

Kalyalya has led the institution through one of the most turbulent economic periods in the country’s history after a power crisis and a collapse in copper prices prompted Zambia’s currency to drop by around 50 percent the year he took over from Michael Gondwe. He has not shied away from criticising the Government’s loose fiscal policies when needed, and economic growth decelerated to 2.9 percent in 2015, the slowest this millennium.

Despite dwindling foreign reserves the Government is grappling with increasing external debt servicing costs and the International Monetary Fund (IMF) has already classified the nation of being at risk of debt distress. The government has been working to secure a $1.3 billion lifeline from the Washington-based lender, but talks have stalled.

Bloomberg added that the central bank’s local-currency debt auctions have also started showing signs of strain, as the amounts raised at the last two plunged. This will make it difficult to fund the government’s budget deficit, targeted at 6.1 percent of gross domestic product for 2018.

Kalyalya’s biggest challenge is addressing the Government’s lack of a sufficient shift towards fiscal balance and debt sustainability, according to Gregory Smith, sovereign debt strategist at Renaissance Capital, said in reply to emailed questions from Bloomberg.

Smith, a former economist with the World Bank in Zambia, added that, “The job of the central bank would be made easier if the government were willing to calm down the rate at which it is borrowing, and with such a signal rekindle talks with the IMF. At the current low levels of international reserves, and without an IMF program in place, the economy remains vulnerable to a slide in the copper price or further rally of the US dollar.”


Features & Analyses