Outspoken finance minister Tito Mboweni was reprimanded by President Cyril Ramaphosa on Monday after he waded into the sudden firing of the central bank governor in Zambia, a move that led to a sharp sell-off in that country’s assets on Monday. The rand was left unscathed.
Mboweni, who headed the Reserve Bank for a decade as its first black governor after the end of apartheid, is a fierce proponent of central bank independence. He took to Twitter to criticise president Edgar Lungu for firing Zambian governor Denny Kalyalya over the weekend.
The minister, who sometimes refers to himself as “Governor No 8”, went as far as to say he would “mobilise” if Lungu didn't give reasons for the firing. The action caused the kwacha to fall to a record low and Zambia's Eurobonds to plunge on Monday, according to Bloomberg.
The IMF did not directly criticise Zambia’s government but said “credible institutions” were crucial to improving living standards.
In a statement issued on Monday, the presidency said Mboweni's comments did not reflect the views “of the SA government and its people”.
After Kalyalya's firing, Mboweni had tweeted that African presidents needed to “stop this nonsense” of firing central bank governors. He said Zambia's leader “must give us the reasons why he dismissed the governor — or else hell is on its way. I will mobilise!”
Locally, markets were unperturbed and the rand gave no indication that investors thought the spat could lead to the departure of SA's finance minister.
Instead, the currency reached its strongest in level three weeks and breached R17/$. It was boosted by an improvement in sentiment towards riskier assets as optimism that progress was being made in the search for vaccines more than compensated for increases in infection rates in some European countries.
“Nothing is going to come out of it and politicians get reprimanded all the time,” said Nolan Wapenaar, co-chief investment officer at Anchor Capital.
Since the outbreak of the Covid-19 pandemic, Mboweni has been outspoken in defence of the Reserve Bank, which has come under attack for not doing enough to support the economy despite cutting interest rates to the lowest levels in about half a century. He has also rejected calls for the Bank to fund the government with newly created money, something that the UK's central bank was instructed to do by its government in April.
For Zambia, Africa’s second-biggest copper producer, the crisis comes at a critical time for an economy that is forecast to contract 4.2% in 2020 with annual inflation lingering near 16%. Debt is soaring and the fiscal deficit rapidly increasing as the coronavirus pandemic curbs revenue.
The kwacha fell as much as 1.44% to a record low 19.35/$ and was 0.7% weaker at 19.2075 at 6.pm. The yield on Zambia's $1bn of Eurobonds due in 2024 rose to the highest since June 30. At the same time, the rand was 1.3% stronger at R16.9370, having earlier gained as much as 1.5%.
Lungu did not give a reason for firing Kalyalya, who repeatedly urged the government to cut the fiscal deficit amid ballooning debt and falling foreign-exchange reserves. His dismissal could raise concerns among investors who saw him as a credible governor trying to keep a spendthrift government in check.
“The macroeconomic stability that most developing countries have enjoyed in recent years has greatly relied on the much-improved effectiveness and increased independence of central banks,” an IMF spokesperson said in a statement.
“It is imperative that central banks’s operational independence and credibility is maintained, particularly at this critical time when economic stability is threatened by the Covid-19 pandemic.”
With Bloomberg
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