• The recent Kwacha appreciation comes at a time when the country requires much-needed debt restructuring.
• This will provide sustainability to the current appreciation of the Kwacha over the long term.
• Kwacha appreciation is being driven by several factors.
Policy Monitoring and Research Centre (PMRC) says debt restructuring remains critical in providing a long-term solution to the exchange rate volatility that the country periodically experiences as a result of its trade imbalance.
Centre Executive Director Sydney Mwamba told Money FM News that this will provide sustainability to the current appreciation of the Kwacha over the long term.
And Mr. Mwamba attributed the appreciation of the local unit against the United States dollar to the positive reports from the International Monetary Fund (IMF) spring meetings on Zambia’s request for debt restructuring among other factors.
He said this is due to the positive sentiments associated with the credit committee’s agreement that will give guarantees to Zambia as well as provide further relief in terms of supporting the Government to restructure its debt.
“It is clear that the sudden Kwacha appreciation is being driven by several factors. The appreciation of the Kwacha experienced in the recent days is not the first that the country is experiencing after August 2021. The announcement of the Staff Level Agreement and the receipt of the $1.3 billion special drawing rights saw a sharp appreciation of the kwacha after months of depreciation in the first half of 2021.”
“The recent Kwacha appreciation comes at a time when the country requires much-needed debt restructuring, which is critical to stabilizing macroeconomic fundamentals, particularly inflation, which increased for the second month in a row to 9.9% in March 2023 from 9.6% in February 2023 and 9.4% in January 2023. Statistics indicate that the March inflation rate was the highest in the first three months of 2023, as the weakening of the Kwacha continued resulting from associated costs of imported goods like gasoline and cereals,” Mr. Mwamba noted.
Mr. Mwamba added that it is critical that the sentiments are actualized as soon as possible, so that the Kwacha’s positive performance can translate into higher living standards by reducing commodity prices.
“There are a number of short-term drivers that have contributed to the kwacha’s appreciation, which must be capitalized on to ensure sustainability and the positive trickle-down effect of the currency appreciation on the country’s standard of living.”
“The Bank of Zambia’s release of US$443.5 million to stabilize the currency in January, as well as an increase in the reserve ratio on commercial banks’ deposit liabilities by 2.5% points to 11.5%, are producing much-needed results by curbing Kwacha volatility. Increased copper prices on the London metal exchange is also another driving force to the appreciation of the Kwacha, which surged from around US$8049.86 per tonne in November 2022 to highs of US$9037.95 per tonne in January and trading at US$9030.10 per tonne as of 17th April 2023,” he explained.
The US Dollar is currently buying at Seventeen Kwacha Twenty Ngwee and selling at Seventeen Kwacha Fifty three Ngwee.