By Nasreen Seria
March 11 (Bloomberg) — Zambia, Africa’s biggest copper producer, is in talks with the International Monetary Fund for loans of about $200 million to help boost its foreign currency reserves after prices for the metal plunged.
The lender will decide on the funds by May, Zambia’s central bank Governor Caleb Fundanga said yesterday in an interview in Dar es Salaam, Tanzania, where he is attending an IMF conference. The negotiations are ongoing and a final loan amount hasn’t been agreed upon, he added.
Glencore International AG and other companies plan to shut mines and fire thousands of workers after copper prices fell by almost half from a record $7,276 a metric ton on Sept. 22. Zambia’s kwacha has plunged 38 percent against the dollar in the past six months as export earnings declined and foreign portfolio investment dried up. The country’s foreign currency reserves have slumped about 40 percent to $850 million since August, Fundanga said.
“Our balance of payments position has deteriorated quite considerably,” Fundanga said. “The IMF was in the country and we are discussing with them the possibility of enhancing our current” loan facility. “They are willing to do that because they have seen what has happened to our external sector in the last quarter of the year.”
The loan would be in addition to the $79 million that the IMF agreed in June to give Zambia over the next three years. The new funding will be used to increase foreign currency reserves, which currently cover about two-and-a-half months of import needs when excluding the mining industry, the governor said.
The IMF is also in talks with Kenya on a loan of as much of $100 million to help the east African nation boost reserves, the lender said yesterday. The fund agreed in December to lend Malawi $77 million for the same purpose.
Copper makes up two-thirds of exports in Zambia and government revenue from mining slumped by more than 60 percent to 319.3 billion kwacha ($57 million) in 2008 from the previous year, according to the Economic Intelligence Unit. Fifteen thousand workers may lose their jobs this year, according to the Mineworkers Union of Zambia, which would represent a third of the country’s miners.
The Bank of Zambia last week banned non-residents from borrowing the kwacha for less than one year to help stem the currency’s losses. Fundanga said the restrictions are aimed at halting “speculation” in the currency by foreign banks, with the limits remaining in place until the “situation returns to normal.”
“We faced extreme pressure on the foreign exchange market and it was necessary to do something,” Fundanga said. “These offshore transactions were seen as a source of destabilization. If this can help to bring back stability and therefore reduce the pressure on the market, then it’s a good thing. We are still committed to a liberalized foreign exchange market.”
Zambia is forecasting economic growth of 5 percent this year, which is still achievable even if copper prices end the year at about $4,000 a ton, Fundanga said. While mining will probably contract and tourism growth may slow, financial services and agriculture may expand, he added. The economy grew 5.8 percent in 2008, Finance Minister Situmbeko Musokotwane said on Jan. 30.
To contact the reporter on this story: Nasreen Seria in Dar es Salaam on firstname.lastname@example.org
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