• This has put Zambia in a very difficult situation.
• Investors are looking at the protraction of the debt restructuring process as a hindrance to making investment decisions.
• The low supply of the greenback has triggered high demand.
An Economist has attributed the weakening of the local currency to the prolonged debt restructuring process which has seen reduced investment inflows due to dwindling confidence.
Emmanuel Zulu explained to Money FM News in an interview that the Federal Reserve Bank tightening of Monetary Policy through hiking of interest rates in their quest to achieve desired inflation target, has reduced supply of the greenback on the market.
Mr. Zulu said the low supply of the greenback has triggered high demand, thereby giving it more strength against major currencies, including the Zambian Kwacha.
“What is causing the continued depreciation of our local currency are many factors, the heavy importation of goods and the protraction of the debt restructuring process. However, it must be pointed out that the Federal Reserve Bank tightening of Monetary Policy through the hiking of interest rates in their quest to achieve desired inflation target has reduced supply of the greenback on the market.”
“The low supply of the greenback has triggered high demand for the dollar thus giving it more strength against major convertible currencies, Kwacha inclusive. And because of that you get to see that a lot of people are ensuring to get the dollar because it is in short supply. So there is that high demand for the dollar which is triggering continued depreciation of the Kwacha,” Mr. Zulu explained.
Mr. Zulu added that investors are looking at the protraction of the debt restructuring process as a hindrance to making investment decisions considering that the country is already in a default state.
“Aside other factors that I have mentioned such as protraction of the debt restructuring process , this has put Zambia in a very difficult situation because investors now are looking at the protraction as a hindrance to making investment decisions because Zambia is already in a default state, the Eurobond was defaulted. So investors are holding back thereby resulting in reduced investment inflows which is reflecting in the money market,” he added.
Meanwhile, Finance Minister Dr. Situmbeko Musokotwane has acknowledged that the protracted negotiations on debt restructuring are putting pressure on the local currency.
Speaking during an online interactive forum, Dr. Musokotwane however said measures are being put in place to stabilise the Kwacha due to the uncertainty on the debt restructuring process.
He added that a lot has been done as Bank of Zambia has been selling United States dollars into the market which has helped the currency to get to where it is today.
“What I mean is that had the Bank of Zambia not been selling dollars, the depreciation you see today would have been more then on top of that, Bank of Zambia announced Monetary Policy measures.”
“When you are trying to stabilize the exchange rate there are two things that you can do, one is to put in more dollars in the market but the other thing is to remind ourselves that for you to buy dollars you need Kwacha and the most important thing to do at this stage is to stabilize the Kwacha because when it loses value prices of fuel and so many other things go up,” he said.
The US Dollar is buying at K20.24 Ngwee and selling at K20.65 Ngwee, while the Great British Pound is buying at K24.44 Ngwee and selling at K20.93 Ngwee.
The Euro is buying at K21.47 Ngwee and selling at K21.90 Ngwee, whereas the South African Rand is buying at K1.09 Ngwee and selling at K1.12 Ngwee.
