Zambia’s currency remains at a record low due to the ongoing drought

Due to a severe drought that continues to put strain on the economy of Zambia, a country in Southern Africa that produces copper, the value of the kwacha has fallen to a number of record lows since the year began.

Although analysts had thought that Zambia’s early-year recovery from default would have improved sentiment, the currency has dropped over 15% in the previous six months and is currently around 3% below its pre-debt restructuring arrangement level.

The kwacha hit a fresh record low of 28.13 per dollar at the end of Wednesday’s trading session, according to LSEG.

According to Charlie Robertson, head of macro strategy at FIM Partners, “some big payments for imported electricity, or something similar, could easily drive the ZMW in a local market like this one.”

According to a study by Access Bank Zambia, mining companies were being forced to reduce their output of copper, a major source of hard currency, due to the overburdened energy supply.

Last year, the greatest drought in a century hit southern Africa due to El Niño’s severe impacts, destroying agricultural output and prompting Zambia’s officials to restrict energy generation on the Kariba dam, the country’s main electricity source.

“The amount of water available for hydropower generation remains insufficient for sustainable operations, especially given the unpredictable nature of regional rainfall patterns,” Zesco, the state-owned power company, stated on Tuesday.

The kwacha fell after Zambia’s November 2020 default on $11 billion in external debt, but it briefly rose by 20% in February of last year when it became evident that its restructuring efforts would be successful.

Some businesses sold dollars during Wednesday’s session in order to pay local taxes the next week, according to a financial expert in Lusaka, providing some assistance to the kwacha.