Zambia dumps unpopular forex laws

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br zambia BLOOMBERG NEWS The exterior of the Bank of Zambia stands on Cairo Road, Main Street in Lusaka, Zambia, on Monday, Jan. 28, 2008. It is the central bank of Zambia and is responsible for monetary policy and economic stability of the country. Photographer: Jean-Claude Coutausse/Bloomberg News

Matthew Hill Lusaka

Zambia scrapped two laws restricting foreign exchange trade in Africa’s second-biggest copper producer, triggering the kwacha’s biggest gain against the dollar in 15 months.

Legislation introduced in 2012 that banned the use of dollars and other currencies within Zambia was revoked with immediate effect, Finance Minister Alexander Chikwanda said on Friday.

The government had also abandoned a law that required firms to notify the Bank of Zambia of any foreign transactions, Chikwanda added.

“These regulations were passed principally to support the implementation of monetary policy,” he said.

“Challenges have arisen in the implementation of these statutory instruments. To allow for further consultation government has decided to revoke these statutory instruments with immediate effect.”

The currency gained as much as 3.4 percent and was bid 2.9 percent stronger at 6.152 kwacha to the dollar by 5.26pm in Lusaka on Friday, the world’s best performer on the day.

Before the announcement, the kwacha had weakened by more than 13 percent against the dollar this year. It had been hit by copper prices that had retreated 13 percent since January and policy announcements that damaged business confidence, Fitch Ratings said.

A weaker currency might stoke inflation in Zambia’s import-dependent economy and push up costs of repaying foreign debt, it said.

Zambia’s move to abolish foreign currency restrictions differs with the approach by Ghana, which tightened restrictions last month in a bid to stem declines in its currency.

The announcement “demonstrates the absolute determination of the Zambian authorities to do whatever is needed to halt the currency slide”, Razia Khan, the head of Africa research at Standard Chartered in London, said. “Many market participants had seen those statutory instruments as unhelpful.”

The laws were revoked after the government held meetings with business leaders who were “strongly” opposed to the regulations, Chikwanda said.

The laws had a “negative impact” on business’s ability to contract foreign loans, Geoffrey Sakulanda, the president of the Zambia Association of Chambers of Commerce and Industry, said after the announcement.

“This is the best economic news we’ve had since the Patriotic Front government came into power,” Trevor Simumba, the managing director of Sub-Saharan Consulting Group Zambia, said. “It’s going to calm the market and also incentivise investors that were holding back to invest.” – Bloomberg

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