Financial and Monetary Systems

Here's how the Zambian kwacha rose in the face of inflation and debt

Zambian Kwacha inflation debt banknote

The Zambian kwacha is the best performing currency in the world against the US dollar, rallying over 18.5% from Jan. 22 to Sept. 1. Image: REUTERS/Mackson Wasamunu

Faustine Ngila
East Africa correspondent, Quartz
  • Zambian President Hakainde Hichilema has brought inflation down from 24.4% in August 2021 to 9.7% in June this year.
  • The Zambian kwacha has been the world’s best-performing currency against the US dollar for much of this year.
  • A range of monetary and fiscal measures appear to be behind the economy’s strength, such as removing customs duty on importing cattle and chicken breeding.
  • A debt restructuring deal with the IMF has also helped.

When he first came into office, almost a year ago, Zambia’s new president was ridiculed by skeptics who called him, “the calculator boy,” for his strong focus on the economy and his background as an accountant.

Looking back now, it’s evident that these were the exact skills that Zambia needed to pull itself back from the economic mess it was in at the time, having become the first African country to default on repayments during the pandemic. Since he became president in August last year, Hakainde Hichilema has steered the economy towards stability.

The Zambian kwacha is the best performing currency in the world against the US dollar, rallying over 18.5% from Jan. 22 to Sept. 1.

While continental peers South Africa, Zimbabwe, Nigeria, Ghana, and Kenya have been unable to control rising inflation and plunging currencies, Hichilema’s government has managed to reduce the inflation rate from 24.4% in August 2021 to 9.7% in June this year.

Loading...

Zambia’s economy

What could be Zambia’s secret in shining in economic areas where almost all countries in the world are struggling? A raft of both monetary and fiscal measures, according to the Policy Monitoring and Research Centre in Lusaka, the capital.

A chart showing Zambian Kwacha has been rallying against the US dollar.
The Zambian Kwacha has been rallying against the US dollar. Image: Quartz.

When the government’s monetary policy committee met last November, it decided to “raise the monetary policy rate by 50 basis points to 9%.” The rate remains unchanged till now. The ultimate goal is to reduce inflation to between 6% and 8% by mid 2023 and a decline in inflation had been achieved when it met again in May 2022.

To support agriculture and livestock, the government also removed 5% customs duty on the importation of cattle and chicken breeding. The rate of rise of food prices fell from 12% in July to 11.3% in August.

Challenges still prevail though in the mining sector, which contributes 10% to the country’s GDP.

Restructuring Zambia’s debt

An agreement with the International Monetary Fund (IMF) to restructure Zambia’s debt, a $1.4 billion bailout package has seen the Kwacha strengthen against the US dollar and helped contain the rate at which prices were rising due to supply-chain disruptions emanating from the war in Ukraine and ravages caused by the covid-19 pandemic. The IMF board approved a $1.3 billion 38-month loan to Zambia on Aug. 31 in addition to another $1.3 billion special drawing rights allocation from the fund it received in August 2021.

A $1.4 billion bailout package has seen the Zambian Kwacha strengthen against the US dollar and helped contain the rate at which prices were rising.
A $1.4 billion bailout package has seen the Zambian Kwacha strengthen against the US dollar and helped contain the rate at which prices were rising. Image: Quartz.

Economist Patrick Chileshe says the other reason why the Kwacha has been gaining against the US dollar is increased forex supply. To guard against the volatility in the exchange rate, the central bank was offloading 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.

Discover

How is the World Economic Forum fostering a sustainable and inclusive digital economy?

Have you read?
Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Stay up to date:

Zambia

Related topics:
Financial and Monetary SystemsEconomic Growth
Share:
The Big Picture
Explore and monitor how Financial and Monetary Systems is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

How tokenization is transforming global finance and investment

Yuval Rooz

December 10, 2024

What does the new corporate borrowing boom mean for policymakers and business?

About us

Engage with us

  • Sign in
  • Partner with us
  • Become a member
  • Sign up for our press releases
  • Subscribe to our newsletters
  • Contact us

Quick links

Language editions

Privacy Policy & Terms of Service

Sitemap

© 2024 World Economic Forum