Zambia Central Bank Sees Kwacha Rebounding From 2009 Lows

Zambia’s central bank said the drop in the kwacha to near the weakest levels in 4 1/2 years against the dollar is temporary and that the currency of Africa’s largest copper producer is set to rebound.

The kwacha will be in “equilibrium” at a rate of 5.30 to 5.40 per dollar, Emmanuel Pamu, financial markets director at the central bank, said in an interview in Lusaka yesterday. The kwacha has retreated 4.1 percent over the past month, falling to 5.56 per dollar on Nov. 19, the lowest close since May 2009. It was unchanged at 5.5050 per dollar as of 7:17 a.m. in Lusaka, the capital, after declining 0.2 percent yesterday.

The currency’s slide is a “random walk,” Pamu said. “It doesn’t concern us too much. We expect some correction.”

African currencies from the Kenyan shilling and Nigerian naira to the South African rand and Malawi kwacha have weakened against the dollar this year partly as the Federal Reserve considers an end to stimulus that drove demand for emerging-market assets. A 12 percent decrease this year in the price of copper, which accounted for 82 percent of Zambian exports in September, has compounded the kwacha’s fall, Pamu said.

Fitch Ratings last month lowered Zambia one step to B, five levels below investment grade and Standard & Poor’s downgraded its outlook to negative, retaining its B+ rating. Yields on the nation’s $750 million of bonds have climbed 224 basis points, or 2.24 percentage points, to 7.4 percent since being issued in September 2012 compared with an average 133 basis-point increase for dollar-denominated African debt, JPMorgan Chase & Co. indexes show.

Deficit Swells

The nation’s budget deficit is forecast to swell to 8.5 percent of gross domestic product this year, compared with an earlier estimate of 4.3 percent, as funding needs are pushed higher by government spending on wages and subsidies. A weaker currency pushes up prices in the land-locked nation that imports everything from oil to breakfast cereal.

Yields on Zambia’s one-year treasury bills have climbed from less than 10 percent at the start of the year to 15.25 percent at the latest auction last week. Government has been increasing the amount of debt it auctions to meet spending requirements, Pamu said.

The size of bond auctions isn’t expected “to be going down,” which will inevitably push yields higher, he said. “If you have financing requirements that are higher, naturally the interest rates are expected to also be higher.”

Government spending will rise 33 percent to 42.7 billion kwacha in 2014, Zambian Finance Minister Alexander Chikwanda said last month. The country will borrow 3.5 billion kwacha locally and 7.5 billion kwacha abroad to fund next year’s budget shortfall, which government expects will be less than 6.6 percent of GDP.

To contact the reporter on this story: Matthew Hill in Lusaka at

To contact the editor responsible for this story: Antony Sguazzin at

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