Zambia has reached record-high foreign-exchange reserves of $4.31 billion, yet the kwacha continues to depreciate due to rising energy and agricultural imports and effects from a historic drought. Despite actions taken by the Bank of Zambia to improve liquidity, the challenges persist and the currency remains under pressure, compounded by severe electricity rationing.
Zambia has recorded an unprecedented high of $4.31 billion in foreign-exchange reserves, equating to 4.6 months of import cover. This achievement has been supported by inflows from prominent financial institutions such as the World Bank, African Development Bank, and International Monetary Fund. Despite this growth in reserves, the nation’s currency, the kwacha, continues to depreciate due to ongoing economic challenges, primarily stemming from a historic drought affecting the country’s energy resources.
The kwacha faced a decline of 0.2% to reach 28.83 against the dollar, marking its eighth consecutive day of losses. This trend places it among Africa’s top four underperforming currencies for the year. The surge in demand for the dollar, driven by increased imports of energy and agricultural commodities, exacerbates the currency’s woes, as reported by the nation’s largest lender.
In March 2025, the Bank of Zambia took measures to address currency depreciation by raising the cap on foreign exchange transactions that commercial lenders can offer clients from $1 million to $5 million. Although this action temporarily improved the kwacha’s situation, the relief was short-lived, as fundamental economic pressures persisted. Mutisunge Zulu, the chief risk officer at Zambia National Commercial Bank Plc, remarked on this, stating, “The effects do phase out and the real fundamentals kick in. The supply-demand fundamentals remain unchanged.”
Moreover, Zambia heavily relies on hydroelectric dams for over 80% of its electrical power, many of which are currently operating with critically low water levels. Even amid improved rainfall, reservoirs like Kariba are struggling to sustain electricity generation, retaining less than 10% of usable storage. Consequently, the nation increasingly depends on imported electricity while citizens rely on costly fuel imports to power private generators during severe electricity rationing.
Zambia’s record-high foreign-exchange reserves do not alleviate the currency’s ongoing challenges. The kwacha experiences significant depreciation due to persistent drought-related issues and rising import demands for energy and agricultural commodities. Despite corrective measures by the central bank, underlying supply-demand dynamics continue to hinder the currency’s resilience, prompting further reliance on external power sources amid extensive domestic electricity rationing.
Original Source: financialpost.com
