Kwacha strengthens by 0.62%, says ZEITI

The Zambia Extractive Industries Transparency Initiative (ZEITI) says the kwacha last week appreciated by 0.62% as it closed trading at K22.56 per USD from K22.70 per USD recorded the other week.

The local currency has of late been performing well against major convertible currencies especially the American dollar.

Meanwhile, Economic commentator Dr Lubinda Habazooka says the recent appreciation of the Zambian Kwacha represents a pivotal moment in the country’s macroeconomic trajectory.

He says this comes after a prolonged period of currency volatility, rising inflation, and constrained fiscal space, the upward movement of the local unit signals early recovery and growing investor confidence.

He adds that more importantly, it provides a window of opportunity for Zambia to reinforce stability, implement structural reforms, and rebuild economic resilience.

“From its peak levels of depreciation earlier in the year, the Kwacha has appreciated by over 20% against major trading currencies.

“This performance is primarily underpinned by improved foreign exchange liquidity, enhanced mining sector inflows, and investor optimism driven by the country’s progress on debt restructuring and macroeconomic reforms.

“The appreciation is further supported by the Bank of Zambia’s consistent monetary stance and government efforts to contain non-essential public expenditure,” he says.

The economist posits that the appreciation of the Kwacha has already begun transmitting positive effects through key macroeconomic channels:

1. Foreign Trade and Import Costs
A stronger currency directly reduces the Kwacha cost of imports, particularly fuel, pharmaceuticals, capital equipment, and inputs critical to agriculture and manufacturing. For an economy with high import dependency, the reduction in import bills will ease pressures on firms’ cost structures and help reduce cost-push inflation in coming months.

2. Debt Servicing and Fiscal Relief
Zambia’s external debt portfolio is largely denominated in foreign currencies. Currency appreciation, therefore, lowers the local currency burden of external debt service, freeing up fiscal space for social and capital expenditures. This is a critical development in restoring budget credibility and supporting growth-enhancing investments.

3. Household Welfare and Real Incomes
As businesses replenish inventories at more favourable exchange rates, a reduction in retail prices for imported consumer goods is expected within the next one to two months. Lower inflation will help restore household purchasing power and mitigate real income erosion, particularly among low- and middle-income groups.

4. Market Sentiment and Capital Flows
Exchange rate stability has improved investor sentiment, reducing currency risk premiums and enhancing Zambia’s attractiveness to both portfolio and direct investors. This can support the recovery of capital markets and improve access to foreign investment financing, especially in infrastructure, and manufacturing.

“The performance of the Kwacha is a direct reflection of effective policy coordination between fiscal and monetary authorities. The Ministry of Finance has exercised fiscal restraint and demonstrated transparency in public accounts, while the Bank of Zambia has maintained a tight monetary policy stance consistent with inflation targeting and currency stability.

“The recent restructuring of external debt under the Common Framework has also played a vital role in restoring credibility with creditors and multilateral institutions, thereby improving access to concessional financing and reducing exchange rate speculation.

“Furthermore, enhanced mining sector compliance with export proceeds repatriation requirements has significantly improved foreign exchange availability,” he adds.

He makes a strategic call for reserve diversification through gold:

While the current appreciation is a positive development, it is critical that Zambia uses this opportunity to build long-term buffers against future external shocks. One strategic recommendation is the accelerated accumulation of gold as part of the country’s foreign reserves.

Gold serves as a countercyclical asset and a hedge against global financial volatility and currency devaluation. With over 500 artisanal and small-scale gold mining licenses issued, Zambia is well positioned to enhance its gold reserve strategy.

“The Bank of Zambia should strengthen its domestic gold purchasing program, ensure transparent pricing mechanisms, and invest in local refining capacity to retain more value within the domestic economy.

Incorporating gold reserves alongside traditional foreign currency holdings can significantly enhance reserve adequacy, increase monetary policy flexibility, and reduce dependence on a single commodity or bilateral currency support.