Why Zambia’s Currency Leaped 27% Against the Dollar Last Year

Zambia’s currency went in record last year as investors wager on the new government’s ability to secure a bailout deal from the International Monetary Fund and negotiate a debt restructuring.

The kwacha gained 27 percent against the dollar last year, owing to optimism following President Hakainde Hichilema’s election victory in August.

2021 was the currency’s strongest annual performance since 2005, with just the Seychelles rupee performing higher. In 2020, both were among the three lowest performers.

The current government is attempting to restructure as much as $17 billion in external state debt. To proceed talks with creditors ranging from holders of $3 billion in Eurobonds to $5.8 billion due to China, he needs the IMF’s approval.

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Situmbeko Musokotwane, the Finance Minister, expects to wrap up talks by the middle of 2022. In 2020, it became Africa’s first sovereign defaulter in the post-pandemic era, and it hasn’t serviced much of its dollar debt since.

Copper also gives Zambian Kwacha an advantageous edge

Near-record copper prices have also boosted the currency of Africa’s second-largest copper producer.

This accounted for more than 70% of export revenues and helped improve the 2021 trade surplus to 73.4 billion kwacha ($4.4 billion) through November, up from 41.8 billion kwacha a year earlier.

For the following decade, the country plans to increase production from one million to three million metric tonnes per year.As of November 2021, copper prices were $9,324.71 per metric tonne.

After the Democratic Republic of Congo, Zambia is Africa’s second-largest copper producer (DRC). It is the world’s third most extensively used metal.

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Investment in the country’s mining sector, according to experts, has the explosive potential to accelerate the state’s economy and increase the value of the Zambian Kwacha.

The finance minister stated in the 2022 national budget presentation on October 29, 2021 that the country expects to increase annual production from one million metric tonnes to three million metric tonnes during the next decade.

In November 2021, copper prices were $9,324.71 per metric tonne.The copper market is expected to stay strong in the coming decade as it has become increasingly important in manufacturing and new green technologies such as electric vehicles.

Industry experts estimate an additional demand of seven million metric tonnes of copper by 2030.

Source: fin24