• During the spring meetings, there was hope that Zambia would get the debt restructured.
• The positive sentiments influenced the money market.
• Drop in Copper prices on the international market has also affected the strength of the Kwacha.
An Economist has attributed the current depreciation of the Kwacha to dwindling of positive sentiments from the recent International Monetary Fund (IMF) and World Bank Spring meetings.
Speaking in an interview with Money FM News, Emmanuel Zulu noted that during the spring meetings, there was hope that Zambia would get the debt restructured and the positive sentiments influenced the money market.
Mr. Zulu however stated that the speculative movement has dwindled because Zambia did not get the restructuring deal from the Creditors, and investors are also getting more skeptic about whether the country will still get the deal or not.
Mr. Zulu observed that the outcome of the spring meetings has affected the movement of the currency in terms of the strength on the money market.
“Quite a number of factors can explain what is happening in the money market. Basically what is happening is volatility, there is nothing that has been seen to be stable. So we have up and down swings probably due to movements of factors that influence the foreign exchange rate and if you look at the IMF and World Bank, spring meetings, there was this euphoria that characterized the meeting that Zambia was going to get the debt restructuring deal.”
“Those positive sentiments influenced the money market and people were dumping the dollar hoping that the Kwacha will constantly gain in the event that Zambia gets a debt restructuring deal. So we get to see that there was less demand for the dollar and high demand for Kwacha that characterized the period of two weeks ago. And with the outcome of the spring meetings, Zambia not getting the restructuring deal from the Creditors, and we get to see that speculative movement has dwindled,” Mr. Zulu noted.
Mr. Zulu further observed that the drop in Copper prices on the international market from slightly above US$9, 000 per ton to around US$8, 000 per ton has also affected the strength of the Kwacha.
“You need to look at the Copper prices first of all which measure the export commodity, you get to see that on the London Metal Exchange, some period last month Copper prices gained, the highest was slightly above US$9, 000 per ton. That encouraged exports and revenue earnings.”
“Then you also look at Copper prices have dropped, we are now around US$8, 000 per ton and I think that also has affected the strength of the currency. But we must also understand that there are other factors that are influencing in terms of government expenditure which has an influence on the foreign exchange market. You get to see that the more money government spends or liquidity in the economy, the higher the appetite for consumption and also imports,” he said.
He added that the strength of the currency can only be sustained if the country is exporting more than it is importing.
“One can hold the strength of the currency when we export more and import less, so currently we do not have those strong foundations. We hope that as the Creditors meet again, we will finally get the debt restructuring deal that is going to see the Kwacha gain and we hope that once that is done, more investment will probably go towards the productive sectors that sustain gains from the currency,” Mr. Zulu stated.
The US Dollar is currently buying at Seventeen Kwacha Seventy Two Ngwee and selling at Eighteen Kwacha Seven Ngwee.