Coronavirus Is Responsible For Free Failing Kwacha

Vice President Inonge Wina has attributed the depression of the Kwacha against the United States dollar and other major convertible currencies to the outbreak of the Corona virus.

With the outbreak of the corona virus (COVID-19) in China in January this year, the global economy has adversely been affected and Zambia has not been spared.

The coronavirus is affecting 132 countries and territories around the world and 1 international conveyance (the Diamond Princess Cruise ship harbored in Yokohama, Japan).

Copper, which is Zambia’s mainstay of the economy, has gone through multiple fluctuations, not to talk about the Kwacha which hit K16 per dollar on Friday last week.

This development has put Zambia’s economy, its level of trade and the country’s inflation in a difficult situation.

On Friday last week, the Zambian Kwacha hit K16 per United States dollar as a result of the impact caused by the coronavirus which has affected all currencies in the world.

As of 11:00 hours, the local currency was selling at K16.1348 and buying at K16.1348 against the dollar, the levels which has not been seen in a long time.

It is difficult for the Kwacha to maneuver around this development because Zambia is connected to the global economy, and as the world is grappling with the coronavirus, the economic impact has not spared the country.

Vice President Inonge Wina, last Friday said there are many factors that have contributed to the sliding of the Kwacha among them the coronavirus which has adversely affected the economy globally.

Ms Wina said China is significant in the connection of the global supply chain and the deadly coronavirus had put a strain on different sectors of the global economy including Zambia.

“Zambia is connected to the global economy. Coming back home, the Kwacha has been affected because of reduced supply of foreign currency from mining companies.

“China is one the strong trading partner with Zambia. China imports a lot of copper from Zambia and if the Chinese economy is not responding to our copper, there will be an impact on the Kwacha,” Ms Wina said.
Economic Association of Zambia president Lubinda Haabazoka also attributed the sharp depreciation of the Kwacha to the impact cause by the pandemic.

Dr Haabazoka said the COVID-19 threat landscape has been underestimated to the extent that if not managed appropriately and with agility could cripple the business ecosystem and slide the world into recession.

Emerging and frontier market currencies such as the Brazilian Real, Mexican Peso and Zambian Kwacha has posted steep depreciations as bond holders exit these markets and seek safer haven store such as dollars causing currency shocks sending EM currencies to lows. 

The Kwacha flirted with an all-time low of K15.65 for a unit of dollar as disinvestment risk and dollar demand for agriculture inputs funding gripped the market. 

The Brazilian central bank injected US$3billion in swaps to stabilize its currency while the Kwacha eased pressure after mining flows last week were observed when miners sold dollars to raise Kwacha to meet operational costs. 

However, the concern would be that should inflationary pressure persist, the central bank could tighten monetary policy as its models are inflationary based. 

In a suppressed growth environment, gross domestic product for Zambia could constrict further.
Meanwhile, copper prices fell to their lowest in over three years on Thursday last week after the United States imposed curbs on travel from Europe due to the coronavirus.

Absa Bank Zambia daily market report indicated that investors were disappointed by the lack of detail on other plans to cushion its economy from the pandemic.

“Three-month copper on the London Metal Exchange was down 2.5 per cent at US$5,390 a tonne after falling as low as US$5,389, its lowest since November 2016,” the bank said.

The increased demand of importation of petroleum products, electricity from South Africa and Mozambique, as well as agriculture inputs particularly fertilizer also contributed to the Kwacha depreciation.

Elsewhere, the dollar rallied on Tuesday last week after huge losses against the safe-haven Japanese yen and Swiss franc, amid investor hopes that global monetary policymakers will make further stimulus efforts to mitigate the economic impact of the coronavirus outbreak. 

The greenback’s recovery coincided with a rebound in the US stock market and bounce in Treasury yields across the board, following US President Donald Trump’s announcement that he would hold a news conference on Tuesday about economic measures in response to the virus.