Kwacha stuck at record low as drought persists

Zambia’s kwacha has hit a series of record lows since the start of the year as a severe drought keeps the pressure firmly on the copper-producing Southern African country’s economy.
Analysts had hoped Zambia’s emergence from default early last year would have helped sentiment, but the currency is now roughly 3% below where it was before its debt restructuring deal and has fallen nearly 15% over the last six months.

At the close of Wednesday’s trading session, the kwacha stood at a new record low of 28.13 per dollar, according to LSEG.
“In a local market like this one, some big payments for imported electricity, or similar, could easily drive the ZMW,” said Charlie Robertson, head of macro strategy at FIM Partners.
The strained electricity supply was forcing mining companies to cut production of copper, which is a key hard currency earner, Access Bank Zambia said in a research note.

The severe effects of El Niño caused the worst dry spell in southern Africa in a century last year, devastating crop production and forcing Zambia’s authorities to cut electricity generation on the Kariba dam, the biggest source of electricity.
“The amount of water available for hydropower generation remains insufficient for sustainable operations, especially given the unpredictable nature of regional rainfall patterns,” state power firm Zesco said on Tuesday.

The kwacha plunged when Zambia defaulted on $11 billion worth of external debt in November 2020, but saw a brief 20% jump last February when it became clear its restructuring efforts were going to be successful.
One financial analyst in Lusaka said some companies had sold dollars during Wednesday’s session in preparation for local tax payments next week, offering some support to the kwacha.

Reuters