ABSA Zambia expects BoZ Governor to be replaced, Kwacha to appreciate to K15.0 per dollar

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AbSA Zambia says it expects Bank of Zambia Governor Christopher Mvunga to be soon replaced by the incoming government.

In a brief analysis, the bank says Mr Mvunga is expected to be replaced very soon.

“The same is expected with other presidential appointees (Security wings, Permanent secretaries, Secretary to the Treasury, Utility Company chief executives, NAPSA, ZRA etc,” the bank said.

It said this is a usual trend whenever there is a change of government.

“Significant structural and some policy changes are expected in the government agencies. Financial and budgetary reforms as we head into the budget season are also expected,” it said.

“It will be key to see the 2022 national budget to be presented in October this year.”

ABSA Zambia also said that removal of middlemen in the fuel and agriculture sector that added little value but increased government cost in Crude oil importation and Fertilizer Support Programme is expected.

“Reforms in the FX Market are expected to come – Mineral royalty taxes and other mining statutory obligations may be collected in ZMW once again allowing increased FX supply on the market which will support the Kwacha.”

It said further direct Central Bank intervention to force a Kwacha appreciation like the one observer during run up to elections will stop.

“The Kwacha is expected to appreciate against the US Dollar in the short to medium term from the current 19.3 to 15.0 on the back of positive market sentiment/investor confidence,” it said.

It stated that the UPND government is projecting a rate of 10.0 USD/ZMW.

“The offshore investors that sold USD and bought Zambian government bonds in the last 2 to 3 months at yields averaging 34% are expected to continue aggressively participating in the auctions.”

It added, “We have already noted offshore investors trying to sell dollars today and position to buy more bonds in the next auction, implying a rally in the bond market.”

“The dollar flows will help support the kwacha appreciation and interest rates are expected to start going down (full shift of the yield curve which will filter to other market interest rates). We expect market rates to drop 400 – 500 basis points on average in the short term,” It said.

“The BOZ Bond Buy-Back program that had commenced last year is likely to be stopped despite it having been planned for the full year 2021. The continuation of this will depend on the objectives of the new Governor and Minister of Finance. Public expenditure tightening and close monitoring and accountability is expected.”

ABSA Zambia noted that IMF Programme implementation is expected to resume with some measure of confidence in the governance system.

“A fully funded program is expected and the new government will utilize the $1.4 billion SDR which may most likely be used to boost FX reserves. There’s also an expectation that the IMF program will be concluded in the very short term and at a faster pace than was the case with the previous government.”

It also anticipates that rating agencies will improve Zambia’s rating (from Junk) and outlook in the medium term as the political risk is reduced and with a funded IMF program on board.

“A review of mining tax regime which has been poised to offer huge concessions to the mining corporates at the expense of personal income tax as the new government endeavors to empower the masses.”

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