Kwacha Expected to Remain Subdued
An Economist says the Kwacha is not expected to show a strong rebound anytime soon due to the heavy importation of electricity by government and solar products by businesses as well as individuals to aid the current power deficit.
Speaking in an interview with Money FM News, Emmanuel Zulu noted that Zambia is heavily importing electricity which government is paying for in United States dollars, thereby exerting pressure on the Kwacha.
Mr. Zulu stated that the demand for foreign currency remains high as people keep importing commodities owing to the shortage of supply on the local market as well as appetite for products within the energy sector, therefore the Kwacha still remains under huge stress from the greenback.
“Performance of the Kwacha even this week will be determined by the market forces of demand and supply. As it stands, Zambia is heavily importing power which government is paying for in dollars so there’s exerted pressure on the local unit.”
“Therefore, we do not expect it to show a strong rebound anytime soon because as long as we remain an importer especially with this exerted pressure where we are importing grain, the Kwacha still remains under strain and it will continue to trade on the weaker side,” Mr. Zulu explained.
He added that the current resilience and stability mostly stemming from Bank of Zambia’s interventions and not necessarily any change from the supply fundamentals.
“Going into 2025 as the budget will be implemented, there could be a bit of change in dynamics maybe even as the macroeconomic environment changes, supply side changes, we might see a bit of change and a bit of stability or strong come back of the Kwacha.
“But throughout the year even as we are heading towards the close of the quarter, we will see the Kwacha still trying to just keep afloat through some interventions from the Central Bank. Otherwise, the demand for the foreign currency remains high as people keep importing commodities due to shortage of supply on the local market,” he added.
According to Bank of Zambia, the depreciation of the Kwacha against the US dollar has moderated significantly in 2024, owing to the tight monetary policy stance and improved foreign exchange supply from the mining sector.
Bank Deputy Governor Operations, Dr. Francis Chipimo revealed during the National Symposium on the 2025 budget that between December 2023 and August 2024, the Kwacha depreciated by 5.4 percent to K26.09 per US dollar.
Dr. Chipimo said progress in external debt restructuring and recent reforms in the foreign exchange market have supported the exchange rate.
“The drought continues to pose risks to the Kwacha’s performance as demand for foreign exchange to meet food and energy imports could increase,” Dr. Chipimo asserted.
The US dollar is currently trading at K26.34 and K26.85, on the bid and offer respectively.
