Kwacha hits lowest mark in its history
The Zambian kwacha on Friday reached its all-time weakest against major convertible currencies since it was created in 1968.
The Bank of Zambia’s official rates were on Friday pegged at K5,323.70 and K5,343.70 against the US dollar for buying and selling, respectively. However, commercial banks were trading the US dollar at K5,350 and K5,420 for buying and selling, respectively.
The kwacha has been under pressure since last year’s general elections and has lost about 20 per cent of its worth since.
Economic analysts have blamed the failure by the local currency to recover on reduced US dollar inflows, as foreign investors have held back their money due to uncertainty with the direction of the economy.
A series of apparently impromptu decisions by the new government has heightened anxiety among investors, who have adopted a wait-and-see approach.
According to the Bank of Zambia, the participation of foreign investors in the local financial market has gone to its lowest in 20 years. Five years ago, foreign investors held about 20 per cent investments in all bonds on the market but their participation has now reduced to five per cent.
Over the past few months, the new government has reversed the sale of the country’s largest telecommunications company, ZAMTEL as well as that of a private commercial bank, Finance Bank that had been bought by South Africa’s FirstRand.
The government also recently increased the minimum capital for local commercial banks from US$2.5 million to US $20 million, and for foreign commercial banks from US$10 million to US$100 million.
“The reason for the depreciation of the kwacha is largely due to the unavailability of the US dollar market on the market,” Mwape Kambafwile, the President of the Financial Markets Association of Zambia. “Basically, the kwacha-dollar rate is responding to demand and supply principles.”
Between March and April this year, the central bank spent about US$152 million to save the kwacha from further collapse buy dipping into national reserves to avail the much-needed foreign currency on the local market.
When the kwacha was introduced in 1968, it was fixed at a rate of approximately K1.2 per US dollar. During the late 1980s and early 1990s, a severe economic crisis emerged stemming from poor government oversight and overspending.
As a result the currency suffered from high inflation throughout the 1990's and 2000's. By 2006, it took K4,800 to buy one US dollar.
As of March 8, 2011, a US dollar was equal to K4,715 and of January 23, 2012, the kwacha was pegged at K 5,120 per US dollar.