The Zambian president has come under fire for the abrupt sacking of the central bank governor in the midst of a debt crisis in the southern African nation whose resolution hinges on bailout talks with the IMF.
Denny Kalyalya was fired with immediate effect by Edgar Lungu on Saturday without an official reason being given, at a critical juncture for Africa’s second-biggest copper producer which is struggling to repay more than $11bn of government debts. He was replaced with Christopher Mvunga, a former deputy finance minister and banker.
In a statement on the sacking, the IMF on Monday said that “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”.
“It is imperative that central banks’ operational independence and credibility is maintained, particularly at this critical time when economic stability is threatened by the Covid-19 pandemic,” the IMF added.
The independence of African central banks has come under the spotlight as the pandemic threatens to push many of the continent’s economies into their biggest downturns in decades and governments face funding pressures.
Access to the fund’s loans is widely seen as Zambia’s main route to avoiding default on its debts, which were borrowed to finance an infrastructure boom and large shares of which are owed to Chinese creditors and private bondholders.
Mr Lungu’s government has already appointed advisers to work on a voluntary deal with creditors to restructure the debt, progress on which is necessary to unlock IMF loans. Zambia’s economy, once one of Africa’s fastest-growing, was sputtering even before the pandemic as investors became concerned about Mr Lungu’s erratic style, which has included confrontations with big miners and the intimidation of the opposition. Mr Lungu is battling for re-election next year.
Last week the central bank said the economy could drop by over 4 per cent this year and cut its main interest rate by 125 basis points to 8 per cent. The Zambian kwacha has been one of the world’s worst performing currencies so far in 2020. Before his sacking, Mr Kalyala, a former World Bank official, had called on the government to repair its finances.
“There is no real motive here, there is no rationale to this decision,” said Trevor Simumba, an economic analyst in Zambia. “It is something that has shocked everyone. It is very much a political decision.”
Mr Kalyalya “was just doing his job,” Mr Simumba said. But the president wants a pliant central bank ahead of next year’s election, he said. “The economy is on its knees, it is at rock bottom right now,” Mr Simumba added. Mr Kalyalya’s term had been due to end in 2023. Mr Mvunga’s appointment is subject to parliamentary approval.
The sacking was also criticised by Tito Mboweni, the South African finance minister and former governor of the South African Reserve Bank, in tweets that later led President Cyril Ramaphosa to issue an official reprimand.
“Presidents in Africa must stop this nonsense of waking up in the morning and fire a central bank governor,” Mr Mboweni said. Mr Ramaphosa said on Monday that the comments were “unfortunate” and “the issue is being addressed to ensure that such an incident does not occur again”.
Lesetja Kganyago, South Africa’s central bank governor, has previously said that so-called “fiscal dominance” or pressure to print money to bail out government debt is a risk even in Africa’s most industrial economy.