Zambian 2013 Budget Reviewed by Kampamba Shula
On 12 October 2012, the Minister of Finance, Hon. Alexander Bwalya Chikwanda, MP, announced the 2013 National Budget. Budget highlights and taxation and other changes as contained in the Budget speech and the Zambia Revenue Authority (“ZRA”) publication.
INDECO (IDC): Past Problems and Opportunities Analysed by Kampamba Shula
INDECO (IDC): Past Problems and Opportunities Analysed
Critical Review of IMF 2013 Zambia ARTICLE IV CONSULTATION report by Kampamba Shula
Debt management is still on track The agreed norm is that for internal borrowing the threshold is 25 per cent of GDP but our debt stands at K17 billion, which is 15 per cent of GDP and for external borrowing, the threshold is 40 per cent and our debt is US$3.1 billion which is 14 per cent of GDP, so we are far below the agreed norms. So even in the long term , Zambia is still on track.
US Economy 2014 First Quarter Analysis and Outlook by Kampamba Shula
New data shows the U.S. economy contracted in the first quarter of this year, keeping pace with shifting expectations but down sharply from the prior already disappointing estimate.
Zambia Debt Analysis
Some might say that Zambia should not borrow externally and even as sincere as they may be they are wrong. When the Government borrows locally “Crowing out” happens.
Wednesday, December 5, 2012
The U.S Fiscal Cliff analysed by Kampamba Shula
The U.S.A Fiscal Cliff
Why
is the Fiscal Cliff a Big Problem?
Why
should the world be concerned?
The
Real Focus
Key issues
What
do the markets want?
What
will the markets get?
Solutions
Rebasing the Zambian Kwacha analysed by Kampamba Shula
Rebasing the Zambian Kwacha
••The BOZ have indicated that the key drivers for implementing the rebasement are as follows:
1. To facilitate easier business transactions: use of smaller units simplifies accounting and reduces the risk of errors arising from data input and time spent reviewing such financial data.
2. To increase confidence levels in the Zambian currency: People tend to have less confidence in currencies with numerous zeros.
3. To reduce the costs associated with adapting standard accounting packages: Most accounting packages are developed in countries where currencies have significantly few zero’s compared to Zambia. Accordingly, Zambian entities purchasing these accounting packages, are required to customize them by increasing the field size to accommodate multiple zeros, at a cost.
4. To encourage an efficient payment system: the adoption of a rebased currency will enable easier use of vending machines, car park meters and other related technologies. In addition it will avoid the need to carry large sums of money for transactions.
5. To facilitate the introduction of coins: the rebasing of the currency will enable the BOZ re-introduce the use of coins, which are significantly more durable compared to notes.
In 2012 the Zambian Government began discussing plans to re-base the Kwacha. The reason for this was to reduce accounting errors by eliminating three zeros from the currency.
The exchange of old notes over the counter will be limited to K25 million (K25,000 rebased currency) per individual transaction.
Anti- Dollarization
Money Supply to Interest rate Policy
Now Given the Rebasing it is estimated that the Interest will have rise somewhat to about 10% to cushion upward inflationary pressures.Let me explain further, certain individuals (you may know some or be the one) prefer to keep their money under a mattress or in a ditch on some farm (no pun intended).This money will have to come into circulation in the next 6 months for which the old kwacha will still be legal tender.
BOZ has placed a K25mil (old kwacha) transaction limit to changing the old currency to the new one.This makes an incentive for people with too much money to change at once to use it to purchase goods and services.This will effectively increase money supply and in turn raise the Inflation rate.
Inflation
Round off Inflation
Amounts converted from old to new currency will be rounded off to two decimal places. When the third decimal of an amount converted is equal to or higher than 5, the second decimal is raised by 1. If the third amount is less than 5, the second decimal remains the same. E.g. K38,255 becomes KR38.26 and K38,351 becomes KR38.35. The exception is Wages and salaries, pensions, retirement funds and other social benefits of workers, which should be rounded upwards.
"Round off Inflation" is a term that I have coined myself to describe the slight inflation or general increase in prices due to rounding off from the old to the new currency.This could affect essential commodities and luxury goods.For example for Shop owners who have been given a Government mandate to quote both the old and new price this will not be a problem.However for deals done on the "street" this will be a big opportunity for sellers to slightly increase their prices without consumers noticing the difference.This will cause round off inflation.
Advantages
of Rebasing
|
Disadvantages
of Rebasing
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Reducing Accounting Errors
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Adjustment phase may be frustrating
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More accurate estimation of Money supply
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Short term inflationary pressures
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Creates Global confidence in Kwacha
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More Effective Monetary policy
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Exchange rate
The Kwacha has been trading at about K5200 to the US dollar with a lower level of K5000 and an upper level of K5400.Check the graph below
With Rebasing coming to effect I estimate that the Dollar will gain against the Kwacha.This is because a short term incentive for investors and BIG players will exist to short the Kwacha.In other words they will sell their Old Kwacha and trade it into Dollars until they feel the exchange rate has stabilised.This will drive up the Kwacha to about K5.5 with an upper limit of K6 to the Dollar.
These are only estimations and I will not be held responsible for trades and transactions made on this information.