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Record dividend to boost government coffers

June 28, 2021by Nicholas Kabaso
  • The Zambian finance ministry received a record ZMW 6.27bn ($277mn) dividend from the Bank of Zambia (BoZ), partly due to gains relat-ed to the depreciation of the local currency. According to the finance ministry, the payment will help boost the government’s finances and will be directed towards achieving the objectives of the country’s economic recovery program. Note, this is the biggest annual divi-dend yet received from the BoZ, with ZMW 2.6bn transferred last year and ZMW 1.9bn in 2019. The BoZ, under Zambia law, pays the state its profits which more than doubled to ZMW 6.9 billion last year, with the biggest contributor to income being an increase in realized for-eign-exchange gains that resulted from the depreciation of the local currency.
  • Meanwhile, on Friday, the Zambezi River Authority announced that it was increasing the amount of water Zambia and Zimbabwe are al-lowed to send through the turbines at the hydroelectric facility this year. Specifically, the water allocation for the two nations will rise to 42bn cubic meters from the previous limit of 30bn cubic meters. The increased allocation is a result of higher water levels at the water reservoir due to good rainfall. 
  • Copper prices have been equally pressured by the stronger USD this morning. The benchmark 3m LME price is currently down some 0.4% on the session at $9379.00/tonne as we head into the start of the EU session.
  • Moving over to the US, there is nothing significant in the way of data today will see the Fed’s Williams take part in a panel discussion host-ed by the BIS. Investors should be on the lookout for any further clarification on the outlook for monetary policy or any further push higher in inflationary pressures. Chances are, however, that Williams will stick to the Fed’s stance that any spike in inflation will be tempo-rary and that the Fed will not want to respond too hastily.
  • This comes on the back of the PCE data that was released last week, which showed that the Fed’s preferred measure of inflation, in the core PCE deflator, rose to 3.4% y/y, the strongest rise in 29 years. Although the spike in inflation is still deemed temporary, this did come as a reminder that the inflation episode is underway and will make life uncomfortable for members of the FOMC. They will need to assess whether the rise in inflation is something temporary or whether it holds the potential to extend.
  • In other geopolitical news, the U.S. has launched airstrikes on Iranian backed militia in Iraq over the weekend. The implications of this ac-tion on the nuclear deal negotiations are unclear. On the one hand, Biden is looking to revive the deal cancelled by former President Trump. On the other, he will not want to tolerate any attacks on personnel or U.S. facilities.
  • Finally, this week will be an important one from a data perspective. It might start off slow but will heat up mid-week with the ADP data re-lease, which will be a precursor to the payrolls data scheduled for the end of the week. Looking ahead, the tightness of the labour market against the backdrop of rising inflation will be something that could prompt the Fed to bring forward the timing of any tightening.
  •  In the FX markets, the Kwacha ended on the week on the back foot, moving north of  22.600. Meanwhile, for the fourth con-secutive day, the USD appears non-committal concerning direction. Technical indicators are pointing to a lack of momentum either way and fundamentally, it may be that investors are waiting for the release of the US labour data before adopting any clear-cut trade. Nothing in the way of fresh data today means that some focus will turn to Fed Speaker Williams’ panel discussion hosted by the BIS, although it is unlikely that he will deviate much from the guidance Powell gave recently, where the spike in inflation was deemed to be temporary.
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Nicholas Kabaso

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