Zambia’s Kwacha Plummets to Record Low Amid Economic Challenges

A man counts out Zambian kwacha 50 denomination banknotes in this arranged photograph in Lusaka, Zambia, on Thursday, Oct. 8, 2015. Zambian Finance Minister Alexander Chikwanda is seeking to restore confidence in the economy to help reverse the world's worst currency performance, record borrowing costs and sliding growth. Photographer: Waldo Swiegers/Bloomberg
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Johannesburg/Lusaka – Zambia’s currency, the kwacha, reached a historic low against the U.S. dollar on Wednesday, plummeting to 27.30 to the dollar as the country grapples with hard currency shortages and a severe drought, leading to power cuts in the southern African nation.

According to data from the London Stock Exchange Group (LSEG) reported by Reuters, the kwacha has depreciated by nearly 5% against the dollar since the beginning of the year and has witnessed a 17% decline over the past six months.

This new low surpasses the previous record of 27.23 recorded on February 6.

In contrast, the U.S. dollar index, which measures the dollar against a basket of currencies, has strengthened by 4% to 105.58 this year.

However, the MSCI International Emerging Market Currency Index has only weakened by 1%, highlighting the kwacha’s significant underperformance compared to larger developing country currencies.

As one of Africa’s leading copper producers, Zambia faced economic challenges exacerbated by the COVID-19 pandemic, leading to a default on its debt in 2020.

Despite efforts to restructure its debt, progress has been slow, although a breakthrough was achieved in March when the government and a group of bondholders reached a tentative agreement.

“There is too much demand for dollars, mainly to meet imports of petroleum products, and we have very scanty supply. It appears we are heading towards 30 per dollar,” remarked a trader at a commercial bank in Zambia.

Currently, an International Monetary Fund (IMF) team is in Zambia, engaging in discussions regarding a potential third disbursement from a $1.3 billion rescue loan program approved in 2022.

The outcome of these discussions could significantly impact Zambia’s economic outlook in the coming months.