As Kwacha Weakens EAZ Calls For Enhanced Balance Of Payment Monitoring
In light of the recent currency weakening trajectory which has seen the Kwacha slide to levels of K13 representing an 8.6% depreciation YTD, the Economics Association of Zambia (EAZ) wishes to advise the Zambian authorities to relook the balance of payment monitoring mechanism. The Association has observed that timely and accurate BOP data is vital to inform and advise authorities accordingly.
If firms are currently front loading imports due to uncertainty in the exchange rate developments, only BOP monitoring can shed light on such trends. It is important that the banking sector (money side) is linked to the tax administration (goods side). If a firm, through its bank, sends foreign exchange abroad for importation of goods, the information should immediately be shared with relevant stakeholders like ZRA, BOZ and CSO. Timely and accurate information assists authorities to appropriately respond to developments in the economy.
The Association has observed lapses in the current monitoring system and noted the risk of unaccounted for flows, i.e. one-legged foreign transactions or mismatches which may negatively impact the foreign exchange flows and accurate taxation capture. Further, BOP monitoring involves private external debt monitoring. It is important to ascertain foreign exchange outflows and the stock and structure of private external debt. Balance of Payments (BOP) position is currently under pressure because the current monitoring mechanism is lagged and based on the goods side of the economy, without balancing this with the money side of the economy. This is not sustainable and not thorough enough to account for foreign exchange flows. The Association appreciates that Zambia is a liberalised economy but advises that some form of monitoring in areas such as foreign currency cash importation is needed to balance such flows.
The Association also echoes the need for the authorities to revisit the Statutory Instrument No.55 attempted a few years back which was hastily implemented. Further, the de - dollarization regulation is a tool which the Association believes was introduced with good intentions. Allowing for price quotes in foreign currency in the name of the free market economy has cost the Kwacha its sovereign value.
Most neighbouring jurisdictions will not allow for entrants to use any currency but the local currency. This has helped preserve the value of the local units. The Association acknowledges that light forms of exchange controls have been misunderstood by many as stifling flows into a liberalised framework. However, the EAZ cites most jurisdictions that have some form of restrictions to preserve value and confidence in local currencies.
The Association is of the view that the authorities should implement electronic forms of BOP monitoring which should strive to reconcile with transactions that the revenue authority sees in the market. The automated process has the benefit of minimising manual interventions which most commercial banks grappled with a few years back during SI.55 implementation.
It is about a dry point of construction that there exists many leakages in the economy and as such the Association believes that automation does help to curb the information mismatches/asymmetries between the banks and the revenue authority. These mismatches characterised the genesis of VAT refund impasse a few years ago. The Association recommends that the authorities consider having all players and conduits to the flow of BOP transactions plug into both the Banking system and Zambia Revenue Authority for seamless reconciliation.
The Association looks forward to a time when SWIFT, Visa, Master Card, Western Union and other payment gateways will integrate into the regulator's systems to aid effective monitoring.
The success of this monitoring mechanism offers a breakthrough in curbing the purported illicit capital flight out of Africa and the unpaid and underpaid taxes.
CAPTION: Mr Mutisunge Zulu is the National Secretary of the Economics Association of Zambia