Faith Nyasuguta
Zambia’s kwacha has emerged as the top-performing currency against the US dollar in Africa for the year 2024. The currency has experienced a remarkable rally of 13.8% to 22.8%, according to data from the London Stock Exchange Group (LSEG).
This surge follows strategic measures taken by the central bank to tighten monetary policy, including raising commercial banks’ reserve ratios and hiking interest rates earlier this month. These steps were aimed at reversing the decline in the kwacha’s value, which had contributed to rising inflation.
Danny Greef, Co-Head of Africa at research firm ETM Analytics, described the kwacha’s performance this year as remarkable.
However, analysts emphasize that sustainable strength for the kwacha will require attracting more foreign investment to the country. Zambian officials attribute the stalled debt restructuring, now in its fourth year, to hindering overseas investment and contributing to the kwacha’s weakness.
“The conclusion to the external debt restructuring exercise will also be instrumental in providing clarity on the outlook for hard-currency and fiscal obligations and unlock pent-up portfolio and fixed investment flows into the country,” stated analysts.
Despite efforts to boost the sector, Zambia’s major foreign exchange earner, copper production, has also experienced a decline.
Bank of Zambia governor Denny Kalyalya explained that measures were taken to address excessive demand in anticipation of potential supply issues from the mining sector.
While the kwacha has weakened slightly this week from 22.5 to $1, it remains more than 20% stronger than the record low of 27.23 reached on February 6.
Economists anticipate an adjustment that will stabilize around the 21-22 per dollar range. Increased foreign currency flows are considered crucial for the kwacha to make further gains.
The Zambian government is actively working on arrangements for new investors to take over Mopani and Konkola Copper Mines. Additionally, companies such as KoBold Metals are engaged in exploration activities with commitments to fund new projects.
However, to ensure sustained strength in the kwacha, it is essential to address the structural imbalance between kwacha and hard-currency liquidity.
Maintaining fiscal consolidation and implementing balance of payments reforms will contribute to establishing an attractive policy environment for investors, according to Imgard Erasmus, a senior economist at Oxford Economics.
In summary, while Zambia’s kwacha has showcased a remarkable performance in 2024, the country faces challenges related to debt restructuring and declining copper production. The path to sustained strength involves attracting foreign investment and addressing structural imbalances through fiscal and policy reforms.
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