Zambia's Kwacha is Africa's Best Performing Currency in 2024

Zambia’s kwacha has emerged as Africa’s top-performing currency against the U.S. dollar in 2024, appreciating by 13.8% to 22.8, according to LSEG data. This notable surge follows the central bank’s implementation of stringent monetary policies, including raising commercial banks’ reserve ratios and increasing interest rates earlier in the month. These measures were aimed at reversing the kwacha’s decline, which had contributed to inflationary pressures.

While the kwacha has experienced a slight weakening this week, settling at 22.5 to $1, it remains over 20% stronger than the record low of 27.23 reached on February 6. Analysts, including Danny Greef, Co-Head of Africa at research firm ETM Analytics, have described the kwacha’s performance in 2024 as remarkable. However, sustainability in its strength hinges on the country’s ability to attract more foreign investment.

Zambian officials attribute the challenges to stalled debt restructuring, now in its fourth year, hindering overseas investment and contributing to the kwacha’s weakness. Additionally, despite government efforts to boost the copper production sector—a major foreign exchange earner for Zambia—output has declined.

Bank of Zambia Governor Denny Kalyalya explained that recent measures were implemented to curb excessive demand and anticipate a forthcoming increase in supply, primarily from the mining sector. The government is actively working on arrangements for new investors to take over Mopani and Konkola Copper Mines. Companies such as KoBold Metals are also engaged in exploration, committing to fund new projects.

Economist Munyumba Mutwale anticipates a stabilizing kwacha, hovering around 21-22 per dollar. However, sustained strengthening would require increased foreign currency flows. Analysts emphasize the importance of the government adhering to fiscal consolidation and balance of payments reforms to create an attractive policy environment. The resolution of the external debt restructuring exercise is viewed as instrumental in providing clarity on hard-currency and fiscal obligations, potentially unlocking investment flows into Zambia.

February 23, 2024