IN a surprising turn of events, Zambia’s kwacha has emerged as Africa’s leading currency against the US dollar in 2024, propelled by the central bank’s stringent monetary measures. Despite this remarkable surge, analysts underscore the critical need for sustained strengthening through increased foreign investment.
According to data from LSEG, the kwacha has soared by 13.8 percent, reaching 22.8 against the greenback this year. This surge follows the central bank’s strategic moves, which included elevating commercial banks’ reserve ratios and subsequently hiking interest rates earlier this month. These measures were implemented to counter the currency’s previous decline, which had led to inflationary pressures.
‘The kwacha’s performance this year has been remarkable,’ noted Danny Greef, Co-Head of Africa at research firm ETM Analytics, reflecting on the currency’s unprecedented rally.
Zambian authorities attribute the sluggish progress in debt restructuring, ongoing for four years, to the impediment of foreign investment and the resultant weakening of the kwacha. However, even efforts to revitalize the country’s primary foreign exchange earner, copper production, have faltered despite governmental initiatives to bolster the sector.
‘The measures that we have taken… are meant to stem some of the demand, which we thought was excessive as we anticipate supply, which mainly comes from the mining sector,’ stated Bank of Zambia governor Denny Kalyalya during a public forum.
While the kwacha experienced a slight dip this week, dropping to 22.5 against the dollar, it still maintains a robust position, being over 20 percent stronger than its record low observed on February 6 at 27.23.
Economist Munyumba Mutwale anticipates a stabilisation of the kwacha around 21-22 per dollar but emphasises the necessity of increased foreign currency flows for further gains.
In efforts to address structural imbalances and attract foreign investment, the Zambian government is finalizing arrangements for new investors to take over Mopani and Konkola Copper Mines. Additionally, companies like KoBold Metals are engaging in exploration activities with commitments to fund new projects.
‘To address the structural imbalance between kwacha- and hard-currency liquidity, it is crucial that the government keep to the fiscal consolidation path and balance of payments reform to establish an attractive policy environment,’ emphasised Imgard Erasmus, a senior economist at Oxford Economics.
Erasmus further highlighted the significance of concluding the external debt restructuring exercise to provide clarity on hard-currency obligations and unlock investment flows into the country.
As Zambia navigates its economic landscape, the sustainability of the kwacha’s strength remains intricately linked to the nation’s ability to attract foreign investment and implement robust fiscal policies.