Kwacha Depreciation Sparks Inflationary Concerns
The Zambian Kwacha continues its downward spiral, intensifying inflationary pressures as the year-end approaches. This period traditionally sees heightened demand for the US Dollar, driven by factors such as corporate buyer participation, import requirements, and year-end financial activities.
Economic analyst Kelvin Chisanga highlights structural challenges fueling this trend. “Zambia’s reliance on imports—ranging from energy to agricultural inputs like FISP and essential medicines—exposes the economy to exchange rate volatility. With a fragile manufacturing base, we cannot offset the high costs of imported goods,” he states.
Mr. Chisanga also points to policy contradictions that complicate the situation. “While the Bank of Zambia has planned interventions, including restrictions on Dollar transactions, there is fear that these measures may only fuel demand for Dollars in the local market,” he adds.
The anticipation of these policy shifts, which are set to take effect in January, has sparked a rush to purchase Dollars, contributing to the currency’s weakening.
Seasonal spending, particularly on Christmas-related purchases, has further spiked Dollar demand. “This period sees increased imports, which significantly amplifies the demand for foreign currency,” says Chisanga.
The importation of energy commodities, including fuel and electricity, remains the largest contributor to the forex imbalance. “Our importation of fuel and electricity is exposing the Kwacha to greater risk. With international oil prices fluctuating, Zambia’s economy is especially vulnerable to exchange rate volatility,” Chisanga explains.
As stakeholders closely monitor the situation, the Kwacha’s performance threatens to widen economic vulnerabilities heading into 2025.
