De-Dollarisation Risks Worsening Zambia’s Economic Troubles, Warns Expert
Zambia’s ongoing economic challenges have sparked debates on the potential benefits and pitfalls of de-dollarisation. Economic expert Kelvin Chisanga cautions that de-dollarisation, though aimed at stabilizing the Kwacha, might lead to further economic complications without a robust industrial base.
Mr. Chisanga argues that while dollarisation has adversely impacted local industries, the absence of a strong industrialisation drive complicates efforts to de-dollarise effectively. “Our manufacturing sector has yet to take off and occupy a significant space in the local economy,” he notes. Without a vibrant manufacturing industry, transitioning away from the dollar could prove problematic.
The Bank of Zambia’s efforts to tackle the “impossible trinity”—capital mobility, a fixed exchange rate, and an independent monetary policy—must consider three crucial economic elements. First, Zambia needs capital, and the global market provides a vital avenue for this. Second, a flexible exchange rate regime is necessary to support key imports like fuel and medicine until the economy is more self-sufficient. Lastly, maintaining an independent monetary policy is essential for moderating the cost of capital in the market.
Mr. Chisanga warns against implementing de-dollarisation or exchange rate controls, as suggested by some economic sectors. “This plan will worsen the situation,” he explains, “with escalating capital investment costs triggering price increases in financial services and resources.”
Instead, Mr. Chisanga advocates for strengthening manufacturing activities to bolster the export basket, thereby supporting forex market fundamentals. While de-dollarisation aims to stabilize the Kwacha, its implementation could disrupt an import-dependent economy and deter prospective investments by reducing capital inflows from global markets.
He also highlights the potential challenges de-dollarisation could pose for international transactions, especially in sectors with high forex requirements, causing delays and inefficiencies. Additionally, the Bank of Zambia would face difficulties in executing monetary policy strategies, leading to higher business costs and a weakened monetary policy framework.
The International Monetary Fund (IMF) has advised Zambia to focus on building and scaling up industries to boost production in response to export market demands. Mr. Chisanga echoes this sentiment, pointing to Zimbabwe’s economic struggles before reverting to dollarisation as a cautionary tale.
Finally, Mr. Chisanga emphasizes that the timing for de-dollarisation is not ideal. “We are currently in an IMF programme amid several challenges,” he says. Positive macroeconomic developments, such as stable inflation rates, interest rates, exchange rates, employment, production, and consumption levels, should precede any de-dollarisation efforts.
Mr. Chisanga’s stance is clear: while de-dollarisation might seem like a solution, it risks exacerbating Zambia’s economic woes without a solid industrial foundation and supportive macroeconomic conditions.
