Zambia’s kwacha has clinched the title of Africa’s best-performing currency against the U.S. dollar this year, a remarkable achievement attributed to the central bank’s aggressive tightening of monetary policy. According to LSEG data, the kwacha has appreciated by 13.8%, reaching 22.8 against the dollar, following the Bank of Zambia’s decisive actions to increase commercial banks’ reserve ratios and hike interest rates, aimed at curtailing the currency’s slide and curbing inflation.
“The kwacha’s journey in 2024 is nothing short of extraordinary,” remarked Danny Greef, Co-Head of Africa at ETM Analytics, underscoring the currency’s standout performance amidst a challenging economic landscape.
Zambia has been grappling with a protracted debt restructuring process, now in its fourth year, which officials cite as a major obstacle to attracting foreign investment and stabilizing the kwacha. Additionally, despite concerted efforts by the government to revitalize the mining sector, copper production—a key pillar of Zambia’s economy—has witnessed a decline.
Bank of Zambia governor Denny Kalyalya, during a recent public forum, emphasized the central bank’s strategy to alleviate excessive demand pressures, particularly in anticipation of increased supply from the mining sector. “Our recent measures are designed to mitigate demand and await the resurgence of mining output,” he explained.
Although the kwacha experienced a slight dip this week from 22.5 to the dollar, it remains substantially stronger than its all-time low of 27.23 recorded on February 6. Economists project a stabilization in the currency’s value around the 21-22 per dollar mark, contingent on enhanced foreign currency inflows.
Zambia’s efforts to revive its mining sector are gaining momentum, with the government finalizing plans for new investors to assume control of Mopani and Konkola Copper Mines. Furthermore, companies such as KoBold Metals have embarked on exploration initiatives, signaling a commitment to inject new capital into the mining industry.
To sustain the kwacha’s upward trajectory and foster economic stability, experts like Imgard Erasmus, a senior economist at Oxford Economics, stress the importance of adhering to fiscal consolidation and implementing balance of payments reform. “Creating a conducive policy environment is vital for attracting investment and balancing Zambia’s liquidity,” Erasmus pointed out.
Moreover, the successful conclusion of Zambia’s external debt restructuring is pivotal to clarifying the nation’s financial obligations and unlocking delayed investments. As Zambia navigates these economic reforms, the kwacha’s performance serves as a testament to the potential benefits of stringent monetary policies and the necessity for continued efforts to draw foreign investment. The road ahead for Zambia’s economy remains filled with both challenges and opportunities, as the country seeks to leverage its currency’s gains for long-term growth and prosperity.
