Zambia’s worsening shortage of foreign exchange as well as one of its worst droughts in recent memory saw the local currency drop to a record low of K27.3 to the dollar. As explained in the report, the kwacha has lost as much as 17% in the past six months.
Forex Shortages: The Impact of Drought
On May 8, the Zambian currency, the kwacha, plunged to a record low of ZMW27.3 per dollar amid worsening foreign exchange shortages. The currency’s troubles have been exacerbated by one of Zambia’s worst dry spells in years which has impacted its power generation capacity.
According to a report by Reuters, the kwacha has depreciated by 5% in 2024 and 17% in the past six months. The performance of the Zambian currency against the U.S. dollar in 2024 starkly contrasts its status as one of the best-performing currencies in 2022. As reported by Bitcoin.com News in September 2022, the kwacha surpassed the Russian ruble to become the world’s top-performing currency after the International Monetary Fund (IMF) approved a bailout package for Zambia.
At that time, media reports suggested that an increase in the supply of U.S. dollars, coupled with subdued demand, was another factor contributing to the kwacha’s rise. However, Zambia’s faltering debt restructuring efforts and the resurgent demand for the U.S. dollar are blamed for the kwacha’s current troubles.
Zambian Experts Forsee the Kwacha Falling to 30:1
Meanwhile, one trader with a Zambian commercial bank is quoted in the Reuters report warning that the currency could slip even further.
“There is too much demand for dollars, mainly to meet imports of petroleum products and we have very scanty supply. It appears we are heading towards 30 per dollar,” the trader said.
Nearly two years have passed since the International Monetary Fund approved a financial bailout package worth $1.3 billion, but the African nation has yet to receive the full amount. According to the report, an IMF team is currently in the country to discuss the disbursement of the third payout.