Despite achieving a record-high of $4.31 billion in foreign-exchange reserves, Zambia’s currency woes persist due to rising import demands and challenges in energy production. The kwacha has significantly depreciated, ranking among Africa’s worst-performing currencies in 2025. Recent central bank measures have not effectively resolved these economic pressures.
Zambia has reached a remarkable milestone in its foreign-exchange reserves, achieving a record of $4.31 billion by the end of 2024, equivalent to 4.6 months of import coverage. This increase is largely attributed to financial inflows from institutions such as the World Bank, African Development Bank, and International Monetary Fund. Nonetheless, the nation’s currency, the kwacha, continues to face challenges, depreciating 0.2% to 28.83 against the dollar and marking its eighth consecutive day of decline, ranking it as Africa’s fourth-worst performing currency this year.
Despite the rise in reserves, Zambia has encountered persistent currency troubles, primarily driven by heightened demand for dollars linked to rising imports of energy and agricultural commodities. The central bank recently attempted to alleviate the situation by raising the foreign exchange negotiation ceiling for commercial lenders from $1 million to $5 million, aiming to enhance domestic dollar liquidity and curb further currency depreciation. However, this measure yielded only temporary relief, as the fundamental economic pressures remain unchanged.
The continuing struggle is further compounded by Zambia’s reliance on hydroelectric power, which constitutes over 80% of its electricity generation. The country is currently grappling with critically low reservoir levels, particularly at Kariba, which has less than 10% of its usable storage for electricity generation. Consequently, Zambia has been compelled to import additional power from neighboring nations while citizens rely on imported fuel to operate private generators during periods of severe electricity rationing.
In summary, Zambia’s record-high foreign-exchange reserves, while commendable, have not alleviated the pressures on the kwacha, which continues to depreciate amid rising import demands and a struggling power generation sector. The recent policy changes by the central bank have proven insufficient to produce lasting improvements, and Zambia faces significant challenges in its economic landscape.
Original Source: financialpost.com
