Low US Dollar Supply Impacts Kwacha Performance, Economic Expert Warns
The Zambian Kwacha is set to face further losses in the short term, driven by continued low outputs in key sectors like mining and agriculture, alongside a dwindling supply of US Dollars. Economic expert Mr. Kelvin Chisanga points to the heightened demand for US Dollars, which is exacerbating the local currency’s struggles.
Since mid-September, Zambia’s currency has been under pressure, with negative effects on inflation and local economic performance. The growing demand for the US Dollar is pushing up the cost of importing essentials, such as maize grain, fuel, and electricity.
Despite interventions by the Bank of Zambia (BOZ) earlier this year, the Kwacha has remained weak, performing poorly against a basket of major currencies, including the US Dollar. The seasonal demand for hard currency from September to December has further contributed to the volatility.
Mr. Chisanga notes that the underlying cause of the Kwacha’s depreciation is not a lack of import cover, as Zambia’s reserves are above the minimum three-month requirement, but rather the low productive output in key sectors like energy and agriculture. The drought’s effects are also compounding the problem.
Looking ahead, Chisanga warns that the Kwacha’s strength will remain uncertain in the medium term due to policy uncertainties. However, he remains optimistic about the currency’s potential to strengthen in the long term, driven by expected growth in the mining and agriculture sectors, despite the challenging economic climate.
In conclusion, while Zambia faces short-term economic challenges, there are hopes that the country’s currency may recover as positive growth emerges from key industries.
