Zambia has reached record-high foreign-exchange reserves of $4.31 billion but suffers from currency depreciation due to a historic drought and rising import demands, primarily in energy and agriculture. The kwacha’s decline continues, and recent measures by the Bank of Zambia to stabilize the currency have had limited effects, highlighting a fundamental lack of supply-demand balance.
Zambia has reached an all-time high in foreign-exchange reserves, yet it struggles with its currency’s depreciation following a historic drought. Although the kwacha fell 0.2% to 28.83 against the U.S. dollar, this marks the currency’s eighth consecutive day of losses, making it one of Africa’s poorest-performing currencies this year. A surge in demand for U.S. dollars is driven by increasing energy and agricultural imports, according to the country’s largest lender.
Despite Zambia’s reserves climbing to a historic $4.31 billion by the end of 2024—equivalent to 4.6 months of import cover, aided by support from the World Bank, African Development Bank, and International Monetary Fund—the currency remains under pressure. This follows the Bank of Zambia’s decision to increase the limit for foreign exchange negotiations by commercial lenders from $1 million to $5 million, initiated on March 6, 2025, to enhance dollar liquidity domestically.
However, the temporary relief this measure provided was short-lived. “The effects do phase out and the real fundamentals kick in,” stated Mutisunge Zulu, chief risk officer at Zambia National Commercial Bank Plc. Despite some improvements, the fundamental supply-demand dynamics have not shifted significantly. This situation is compounded by Zambia’s reliance on hydroelectric power from dams currently at critically low levels, forcing increased power imports and further strain on resources as the public resorts to using fuel for private generators due to ongoing electricity rationing.
Zambia’s record-high foreign-exchange reserves are insufficient to alleviate the ongoing depreciation of its currency, the kwacha. The situation is exacerbated by the country’s dependence on imported energy and the need for additional power imports due to low hydroelectric output. With the financial measures put in place yielding only temporary effects, the nation faces continued economic challenges amidst rising dollar demand and energy crises.
Original Source: financialpost.com
