Zambia has achieved record-high foreign-exchange reserves of $4.31 billion, yet continues to struggle with its currency, the kwacha, which has depreciated significantly due to rising import demands and low hydroelectric power generation caused by drought. Attempts to stabilize the currency have had limited success, revealing underlying economic weaknesses.
Zambia has reached record-high foreign-exchange reserves, now totaling $4.31 billion or enough to cover 4.6 months of imports. This boost, aided by financial inflows from the World Bank, African Development Bank, and International Monetary Fund, is undermined by the aftermath of a significant drought. The kwacha recently fell to 28.83 against the dollar, marking its eighth consecutive day of depreciation, which positions it as Africa’s fourth-worst performing currency in 2025.
The drop in the kwacha’s value is attributed to increased demand for dollars driven by rising imports of energy and agricultural commodities. While the Bank of Zambia attempted to stabilize the currency by allowing commercial lenders to negotiate higher foreign exchange rates, this approach only resulted in temporary improvements. Mutisunge Zulu, Chief Risk Officer at Zambia National Commercial Bank Plc, noted that underlying supply-demand fundamentals have not changed.
Electricity generation in Zambia is heavily reliant on hydroelectric dams, which currently face critically low reservoir levels despite recent rains. The Kariba dam, a significant source of power, has been reported to contain less than 10% of usable water for electricity generation. Consequently, Zambia must import power while its citizens largely depend on fuel imports for private generators, exacerbating the ongoing effects of severe electricity rationing in the country.
Despite Zambia’s record-high foreign-exchange reserves, structural issues stemming from a historic drought have caused significant strain on its currency, the kwacha. Increased import demands and low hydroelectricity generation capacity further compound the economic challenges, indicating that reserves alone cannot resolve the ongoing currency depreciation. As the nation navigates these issues, sustainability in energy production and economic stability remain critical.
Original Source: financialpost.com
