Policy centre warns Zambia not to rely on record foreign reserves

The Centre for Trade Policy and Development (CTPD) has cautioned against measuring Zambia’s economic resilience solely by the recent rise in gross international reserves, warning that the country’s heavy dependence on copper exports continued to expose it to external shocks. In a statement issued on Thursday, CTPD Public Finance Desk Officer, Robinson Nakambo, said while the recovery in reserves was a positive development, the headline figures alone did not guarantee long-term economic stability. “However, the quality and durability of this recovery matter as much as the headline reserve figure,” Nakambo said.

He noted that copper remained Zambia’s dominant source of foreign exchange, leaving the country’s reserve position vulnerable to fluctuations in global commodity prices that are beyond its control. Nakambo warned that a decline in copper prices or export earnings could weaken the Kwacha and quickly feed into higher prices for imported fuel, medicines, production inputs and other essential goods, increasing the cost of living for households. He said reserve management should therefore focus not only on building foreign exchange holdings but also on protecting citizens from the effects of external economic shocks.

“Reserve management must therefore protect citizens from this volatility, not merely accumulate foreign assets,” he said. Nakambo urged authorities to take advantage of periods of strong copper earnings to preserve adequate reserve buffers, strengthen policy credibility and reduce the risk of external shocks triggering another cost-of-living crisis. He also called on the Bank of Zambia and Government to complement the recovery in reserves with policies that accelerate economic diversification.

[paywall]

Mr Nakambo said stronger and more diversified sources of foreign exchange would ultimately support a more stable kwacha, lower imported inflation and create a more predictable economic environment for businesses and households. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express permission from ZAMBIA MONITOR.

[/paywall]