PRESS STATEMENT: THURSDAY, 26 JANUARY 2012
The Minister of Finance and National Planning Mr. Alexander Chikwanda announced on Monday that Government was going to rebase the Kwacha by slashing off three zeros from our currency and introduce coins for lower value denominations instead of notes. The largest note therefore will be K50 from the current K50, 000 while the lowest will be K1 from K1, 000. He added that the new currency will be introduced in the next six months during which period the old currency will be withdrawn. The question that begs an answer is what is the effect of rebasing the Kwacha on the economy and the ordinary Zambians in general?
Rebasing is mainly done to make commercial transactions easier and reduce the cost of transaction by transacting in fewer notes. The exercise is also done to enhance people’s confidence in the currency and stabilize its fluctuations. Transacting in Kwacha indeed has been a night mare and rebasing was inevitable.
JCTR notes that while currency rebasing is an acceptable economic exercise for countries, it is largely neutral on the quality of life of people as it doesn’t change the buying power of the currency. Rebasing may enhance confidence in the currency in the short run, but it is important to realize that it may fuel inflation especially in the absence of other initiatives to tame inflation. People always have an illusionary feeling that they have lost buying power and thus tend to increase price of goods and services. The transition must therefore be managed to maintain people’s confidence in the currency by widely disseminating information on the rebasing exercise, says JCTR. It should also be noted that rebasing is not an end in itself and will not bring about the meaningful development that Zambian’s need. The convenience that comes with transacting with a rebased currency should result in enhancing economic growth and economic development. This should be the ultimate focus of Government, adds JCTR.
JCTR further notes with concern that the rebasing exercise of the Kwacha was not provided for in the 2012 budget. Resources will have to be redirected from other activities to this one or government will have to borrow outside the budget. There are just too many activities that government is embarking on which were not budgeted for. For example creation of new districts and the technical committee on the constitution have not been catered for in the 2012 budget. Government ought to depart from this kind of spending immediately or else we will be talking about the usual problems of budget overrun which contributes to poor budget performance and ultimately poor service delivery. JCTR therefore demands that government disclose to the public the total cost of rebasing the Kwacha and the source of money. If the country fails to instill discipline in the way we spend public resources, the three zeros that we are knocking off from the currency now will soon resurface.