Zambia’s Currency Plunges to Record Low as Drought Saps Economy
(Bloomberg) — Zambia’s currency depreciated to a record low against the dollar as the economy struggles with the worst drought in more than four decades and a debt restructuring process that’s dragged on for years.
The kwacha on Wednesday fell as much as 0.3% to 27.28, according to data compiled by Bloomberg. It’s slumped 1.9% this month, making it the worst performing currency globally of those tracked by Bloomberg.
The weakness will amplify price pressures as the nation ramps up food and electricity imports. Annual inflation is already at a more than two-year high of 13.8%. The drought is also expected to halve Zambia’s cereal harvest this year and is causing severe electricity shortages for the nation that relies on hydroelectric dams for about 85% of its power generation.
FNB Zambia, the local unit of South Africa’s FirstRand Ltd., said in a note that it expects the currency to continue weakening for the rest of the week.
The currency could find support if the International Monetary Fund, which has a team visiting Zambia, grants a request from the government for additional financing to help deal with the drought. The government has an existing deal with the Washington-based lender for about $1.3 billion, or 100% of Zambia’s quota with the IMF.
The fund last year temporarily increased the ratio that low-income countries — including Zambia — can access to 600% of their quota.
The dry weather is compounding Zambia’s economic woes. The government has been engaged in a long and complex debt restructuring process since becoming Africa’s first pandemic-era sovereign defaulter in 2020.
Though the government has reached deals with official creditors and bondholders, it’s still in talks with its remaining commercial lenders to revamp about $3.3 billion in liabilities.
©2024 Bloomberg L.P.
