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Zambia left with less than 3 months import cover, says Finance Minister

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The government says the country’s foreign reserves has drastically reduced, with only less than three months import cover left, which an important indicator of the stability of a currency.

Import cover measures the number of months of imports that can be covered with foreign exchange reserves available with the central bank of the country. Eight to ten months of import cover is essential for the stability of a currency.

Foreign reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy.

It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank, foreign reserves help stabilise a country’s local currency and help in the importation of goods and services.

Meanwhile, presenting the 2021 National Budget to Parliament yesterday, Minister of Finance, Bwalya Ng’andu, said the country’s foreign reserves has fallen.

“As at end July 2020, Gross International Reserves declined to US$1.38 billion from US$1.45 billion at end-December 2019.

“This level of reserves represents 2.3 months of import cover,” he said.

Ng’andu added that the decline in reserves was largely on account of external debt service payments.

However, said there are some positive developments in the mining sector with tax receipts amounting to US$203.5 million, adding that net direct purchases of foreign exchange from the market by the Bank of Zambia of US$126.6 million also moderated the decline in reserves.

He also highlighted that the Kwacha depreciated to K19.95 against the US dollar as at 22nd September, 2020 from K14.05 at end-December 2019, further complicating the economic performance for the country.

This represents a depreciation of 41.9 percent.

The Minister of Finance said the depreciation largely reflects supply constraints and increased demand for foreign exchange, particularly the importation of agricultural inputs, health related supplies and procurement of petroleum products.

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Start: 2019-07-01 End: 2019-07-31