Kwacha Under Further Pressure, Experts Warn

Experts are warning that the Zambian Kwacha is likely to continue depreciating against the US dollar this week as inflation rises and a deal with the IMF remains out of reach. 

According to the pan-African institution Access Bank, Zambia’s currency could be trading as low as K22.8 per US dollar by the end of the week. 

“Interim trends suggest that the local unit will likely trade between 22.4500 and 22.8000 in the short to medium term,” the bank told Business Recorder. 

The Bank of Zambia has already sold $259.7million in the first quarter of this year to moderate exchange rate pressure. 

Elsewhere, the Kwacha has been spotted selling at the rate of K32 per British pound. Two years ago the pound was worth only K13.6. 

Meanwhile, the Bank of Zambia has predicted that inflation will continue to worsen in 2021, averaging at 21.9% for the year. This far exceeds the Bank’s target for inflation to remain between 6% and 8% and will make it even harder for Zambians to put food on the table as their wages become effectively less valuable.  

Depreciation of the Kwacha has massively contributed to this inflation, with Bloomberg reporting that the currency was the second-worst performing in African this year.

However, the country’s unstable debt situation remains the major driver behind inflation, which is causing Zambians to go hungry as food prices skyrocket.

The government has been attempting to strike a deal with the International Monetary Fund (IMF) to manage the debt burden for over five years, but has been unwilling to agree to various transparency measures and spending cuts. 

Zambia’s total debt burden now stands at over $20 billion - far higher than when the Patriotic Front came to power in 2011. In 2020, Zambia was one of the few African countries not to receive financial relief for the coronavirus pandemic because of its unstable debt situation, as well as a poor relationship with the PF regime.