Zambia’s currency, the kwacha, has continued its downward trajectory, hitting record lows as the country grapples with the dual challenges of a severe drought and ongoing economic pressures.
Since the beginning of the year, the kwacha has fallen significantly, reflecting the strain on Zambia’s copper-dependent economy. Despite optimism following the country’s emergence from debt default early last year, the currency has depreciated further, now trading roughly 3% lower than its pre-restructuring levels and nearly 15% weaker over the last six months.
At the close of trading on Wednesday, the kwacha reached a new record low of 28.13 per dollar, according to data from LSEG. Analysts attribute this decline to various factors, including large payments for imported electricity and other goods that can easily influence the local currency market.
Electricity Shortages Impacting Copper Production
The country’s strained electricity supply has added to the economic challenges. Research from Access Bank Zambia indicates that energy shortages are forcing mining companies to reduce copper production, a key source of foreign currency for the nation.
The ongoing effects of El Niño have led to Southern Africa’s worst drought in a century, devastating agricultural output and limiting electricity generation at the Kariba Dam, Zambia’s primary power source.
“The available water for hydropower generation remains insufficient for sustainable operations, especially given the unpredictable regional rainfall patterns,” stated Zesco, Zambia’s state-owned power company, earlier this week.
Lingering Debt Challenges
The kwacha’s struggles date back to November 2020, when Zambia defaulted on $11 billion of external debt. While the currency briefly surged by 20% last February amid optimism about debt restructuring, the recovery was short-lived.
In recent trading sessions, some companies sold dollars to prepare for local tax payments, providing temporary support to the kwacha, according to a financial analyst in Lusaka. However, the broader challenges of energy shortages and economic uncertainty continue to weigh heavily on Zambia’s financial landscape.
The situation underscores the importance of addressing both structural and environmental challenges as Zambia seeks to stabilize its economy and currency.