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Home Opinions Insight & Analysis 5 Reasons Why the Zambian Kwacha is the World’s Best Performing Currency Against the Dollar
Insight & Analysis - 3 weeks ago

5 Reasons Why the Zambian Kwacha is the World’s Best Performing Currency Against the Dollar

The Zambian kwacha has gained over 18.5% from 22nd of January 22 to the 1st of September, making it the world’s best-performing currency compared to the US dollar.

Since coming into office in August 2021, ruling President Hakainde Hichilema’s government has guided the economy toward stability and has been able to cut the inflation rate from 24.4% in August 2021 to 9.7% in June of this year. 

However, Zambia’s President was derided by doubters before taking office for his emphasis on the economics and his experience as an accountant, referring to him as “the calculator boy.”

With the benefit of hindsight, it is clear that Zambia required these specific abilities in order to recover from the economic disaster it had gotten itself into at the time after becoming the first African nation to default on debt due to the pandemic.

Furthermore, its continental rivals, South Africa, Zimbabwe, Nigeria, Ghana, andKenya,a have been unable to contain growing inflation and rapidly depreciating currencies.

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Political stability for the Zambian Kwacha

The Zambian Kwacha lost more value in July 2021, dropping to K22.6 per $1, continuing a trend from the previous year. 

There were many people worried that Edgar Lungu, the former president, was taking unsustainable risks with his economy. For instance, Zambia became Africa’s first sovereign defaulter since the pandemic in November 2020.

But there was a new wave of hope following the election of Hakainde Hichilema as president. After the general elections, the Kwacha appreciated 30% versus the dollar, reaching K15.89. After that, the currency had its best year since 2005.

Changed policies

The monetary policy rate has stayed steady since the government’s monetary policy committee voted to “increase the monetary policy rate by 50 basis points to 9%” at its meeting in November 2021. 

By the time it convened again in May 2022, a drop in inflation had been attained; the ultimate goal is to lower inflation to between 6% and 8% by mid-2023.

The government also eliminated a 5% customs fee on the importation of cattle and chicken breeding in order to assist agriculture and livestock. 

Food price inflation decreased from 12% in July to 11.3% in August.

In spite of this, the mining industry, which accounts for 10% of the nation’s GDP, continues to face difficulties.

Restructuring Zambia’s debt

The Kwacha has gotten stronger against the US dollar due to an agreement with the International Monetary Fund (IMF) to restructure Zambia’s debt. A $1.4 billion bailout package has also helped slow the rate at which prices were rising due to supply-chain disruptions brought on by the conflict in Ukraine and the effects of the covid-19 pandemic.

On August 31, the IMF’s board decided to lend Zambia $1.3 billion over a 38-month period in addition to allocating $1.3 billion in SDRs from the fund it had received in August 2021.

Increased forex availability, according to economist Patrick Chileshe, is the additional factor driving the Kwacha’s appreciation against the US dollar. In order to protect against exchange rate volatility, the central bank sold an average of $13 million per day in June.

“We have seen the Kwacha gain strength, and that was driven by increased foreign exchange supply to the market by the Bank of Zambia which was consistent in the market, whereas the demand for US dollars has been low and that led to the appreciation of the Zambian Kwacha,” Chileshe explains.

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