Bank of Zambia Governor Seeks Mine Tax Resolution to Ease KwachaMatthew Hill
Zambian central bank Governor Denny Kalyalya said authorities must resolve a dispute over mining taxes to help ease a foreign-currency shortage that’s contributed to the kwacha’s plunge.
Mining companies’ opposition to a new tax regime is adding to negative sentiment as copper prices slump, Kalyalya, 57, told reporters on Friday in the capital, Lusaka, in his first media briefing since his appointment.
“I’d like to see more dollars coming in, so I’m anxious to see this being resolved as quickly as possible,” he said.
Zambia imposed higher royalties on miners in January to help boost government revenue in Africa’s second-largest copper producer. The Chamber of Mines said the new tax system, which more than triples levies for some operators, may force companies to cut 12,000 jobs this year.
The kwacha has plunged 17 percent against the dollar this year, making it the worst performer of more than 30 African currencies tracked by Bloomberg. President Edgar Lungu, who took office in January, told Kalyalya on Thursday after he was sworn in as governor that he needs to find a “magic wand” to help rescue the currency.
“The kwacha has faced a lot of pressure partly because of the fall in the price of copper,” Kalyalya said. “Then you have the new tax regime where the mines are not happy with that. When they are not happy they are not releasing as much foreign exchange as you’d want them to on the market.”
The kwacha fell to a record low of 7.7523 per dollar on Thursday and was trading at 7.7323 as of 3:22 p.m. in Lusaka on Friday.
“We will continue to review the situation and take necessary measures to address the volatility that is being experienced in the market,” Kalyalya said.
Kalyalya was appointed a month ago to replace Michael Gondwe, who Lungu removed as head of the central bank after three years. Gondwe kept the benchmark interest rate unchanged at a record 12.5 percent last month to help curb inflation, which slowed to 7.4 percent in February.
Interest rates are high relative to inflation and present a “vexing problem” for the central bank, Kalyalya said. The bank may meet its year-end inflation target of 7 percent if the kwacha appreciates and the mining dispute is resolved, he said.
Fitch Ratings cut the outlook on Zambia’s government debt on March 13 to stable from positive while maintaining a B rating, five levels below investment grade.