Zambia’s foreign reserves stand at US$2.4bn

ZAMBIA’s foreign reserves which are currently standing at US$2.4 billion are reasonable for the country’s economy, says Bank of Zambia (BoZ) governor Dr Denny Kalyalya.

Dr Kalyalya said an interview that much as the central bank would be more comfortable if there are more foreign reserves, the current ones did not pose a threat to the economy.

“We have US$2.4 billion reserves, I would be more comfortable if I had more billions but you have to be realistic in terms of what has been happening with reduced exports, the demand in terms of what the reserves can be used for has not stopped,” he said.

He said most of the reserves have been used to service national debt and finance fuel and electricity imports.

“We have to service debt, finance imports of fuel, finance electricity imports; so from that perspective you should take that the reserves have been put to good use to avoid a crisis coming from those areas. Given these factors, I think it is fairly reasonable to look after our economy.

“We definitely want to build more reserves because that is our posture but we would like to see more activity in the export area to have a bigger pool,” he said.

Commenting on suggestions to increase import cover for the reserves from the current three months to at least six months, Dr Kalyalya said doing so would further tighten liquidity in the market while putting pressure on the Kwacha.

Dr Kalyalya explained that increasing the import cover meant that the BoZ would spend more Kwacha to buy foreign exchange, hence putting pressure on the already existing tight market.

“You accumulate reserves for a purpose to meet emergencies; we refrain from doing that to allow the economy to operate. If we bought more foreign reserves it means we will put more Kwacha in the system which will further depreciate and mitigate against inflation target and further squeeze liquidity in the market.

“Even as we aim for that, the reality is that if we all went out to accumulate reserves, it means that we have to compete with other players in the market (SADC and COMESA) and chances are that we are going to win, which is not a good thing for the economy because we will put a lot of pressure on the low supply which is already there,” he said.