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IMF talks to resume this week

March 29, 2021by Nicholas Kabaso
  • Zambia’s Finance Ministry on Friday said that it would resume virtual talks with the International Monetary Fund on the 30th  of March. Talks are expected to continue into the first two weeks of April. According to the ministry, the talks aim to agree to an appropriate policy reform agenda to address “economic challenges that Zambia is encountering and support the country’s return to a sustainable macro-fiscal situation over the medium-term.”
  • In a separate statement, the ministry also noted that it had held a virtual meeting on Thursday with more than 20 international commercial banks and export credit agencies with loan exposure to Zambia. The purpose of the meeting was to update creditors on Zambia’s “macroeco-nomic and fiscal situation, engagement with the IMF, and the authorities’ strategy to restore public debt sustainability according to the minis-try.
  • While the announcement of a resumption in talks with IMF is a positive sign, we remain sceptical that a progamme is likely before the elec-tions. Making progress on a lengthy list of reforms as identified by the IMF in previous talks in an election year is no mean feat and risks exist that success at the polls will trump economic stability when push comes to shove.
  • Copper has come under pressure at the start of the week after booking gains of around 2% into the close on Friday. Today the investment community has chosen to focus on rising exchange inventories and weakening demand out of China. Copper inventories at LME warehouses has risen sharply in the past couple of weeks. A rise of some 67% has been recorded thus far in March to 123 800/tonnes, its highest level since 16th Dec 2020. Stockpiles in the Chinese warehouses monitored by the Shanghai Exchange where last at 188 359 tonnes, a level last recorded in September 2020.
  • On the global front, the container ship blocking the Suez canal namely the 400m long Ever Given has been re-floated and is currently being secured according to Inchcape Shipping Services.  This has raised hopes that the busy shipping route will be reopened to traffic in soon and that the backlog of ships will slowly be cleared. At least 369 vessels are currently waiting to transit the canal so clearing the backlog is going to be a lengthy process. Shipping rates for oil products nearly doubled in recent days however this should moderate in due course. It is also im-portant to note that some shippers have chosen to navigate the route via the Cape of Good Hope as they believe that the journey would be equal to the current delay of sailing to Suez and queuing.
  • The world will be focused on a number of  macro themes this week which include how each region is faring from an economic recovery stand-point. Europe is fighting the third wave of COVID-19 infections with a hard lockdown a reality for many on the continent. This certainly has dampened hopes of a broader recovery in economic activity over the coming months given the level of damage currently being inflicted as a result of the curtailed movement of people and activity. 
  • Moving across the pond to the United States we have very different circumstances with the government moving ahead with massive stimulus programmes and the data pointing to a strong recovery. All eyes will be on President Joe Biden’s trip to Pittsburgh this week where it is ex-pected he will unveil a multitrillion dollar plan to rebuild America’s infrastructure. He is expected to push for a “Build Back Better” plan with the price tag being as high as $4trn to pay for roads etc in the years ahead.
  • In the FX markets, the Kwacha which reached record lows last week  is expected to remain under pressure this week amid continued high demand for hard currency and a diminished supply. 
  •  Meanwhile, the start of the week has been one of sustained USD strength with  other currencies coming under pressure as investors flood to the world reserve currency as sentiment surrounding a global economic recovery takes a hit. Currently investors are betting that the United States will be the outperformer in terms of economic growth especially when compared to the likes of the EU which has had a significantly less successful COVID-19 vaccination campaign and is experiencing a hard lockdown in many of its countries. The EUR-USD has consolidated its posi-tion below the 1.1800 handle while the likes of Sterling has slipped as well. Commodity currencies such as the AUD and CAD are equally on the back foot and emerging markets are finding the start of the week tough going. The ZAR is clear of the R15.00 handle and the MNX is looking towards 20.75 as a target.

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Nicholas Kabaso

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