Zambia’s Kwacha Falls Most in Four Years With More Pain in Store

(Bloomberg) --

Zambia's kwacha fell the most against the dollar in four years and may continue to slide to record lows as “panic buying” of the U.S. currency sets in, according to FNB Zambia, the local unit of FirstRand Bank Ltd.

The currency depreciated by as much as 5.3% to 15.5750 per dollar, bringing its drop so far this year to 21% and making it the world's third-worst performer in 2019. Thursday was the first time it reached 15 per dollar.

“The breach opens up possibilities of further weakness as psychological effects are likely to influence decision-making,” FNB said in a note Friday, adding that farming imports may be the reason for the fall this week. “The fear of the rate running away may cause panic buying while sellers are likely to step aside as they see their kwacha values increase, exacerbating the situation.”

Zambia's economy has been ravaged by a regional drought and repeated budget deficits that have sent government debt soaring. Economic growth won't reach 2% this year, according to the International Monetary Fund, while sovereign debt will end 2019 at 91.6% of gross domestic product.

Currency weakness makes servicing foreign loans more costly and could also drive up an inflation rate that's already at 10.8%, the highest since 2016.

The kwacha's depreciation is “regretable” and the central bank is looking at ways to arrest the slide, Vice President Inonge Wina told lawmakers Friday in Lusaka, the capital.

With foreign exchange reserves near the lowest in a decade, the central bank has little power to sell dollars into the market to support the kwacha.

--With assistance from Taonga Clifford Mitimingi.

To contact the reporter on this story: Matthew Hill in Maputo at mhill58@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Robert Brand, Chris Kay

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