LUSAKA (The Business Telegraph): Currency in Africa’s second largest copper producer Zambia has for the last week been on a losing streak as activity in the agriculture and energy space increases. This has nudged dollar demand higher sending the red metal currency 3.9% bearish to trade north of 18.9 for a unit of dollar. The copper currency sell-off is fuelled by agriculture input (fertilizer) related foreign exchange demand which has come 2 months earlier as Zambia gears up for the Farmer Input Support Program – FISP which curbs food security risks. Other drivers of the sanguine dollar appetite include dollar purchases from the energy players such as OMCs that rediscounted bonds received for the outstanding arrears. Zambia’s central banks reserve stock remains at decade lows with July levels reported at $1.4billion, a $50million increase from June levels. At these levels the Bank of Zambia has not been able to intervene to curb currency slides for fear of depletion of the thin buffer. Earlier in the year, the Zambian tax authorities dollarized all mining tax payments to be paid directly to the central bank in a move aimed at addressing dollar supply which was also hoped to aid shoring up of low reserves. The currency market has seen a metamorphosis of trading rules aimed at restoring price stability. These range from increasing personal trader liability for wide exchange rate swings to naming of authorised brokers.
“We mistake currency stability for a well performing economy which should not be the case for a net importer as Zambia,” The Kwacha Arbitrageur Market Lead Mutisunge Zulu said on Spring24TV Money Watch Business news show. Depreciation is a sign of increased activity which reflects dollar demand for imports, he said.
Dollarization of mining taxes has addressed currency supply and will absorb significant government demand from the foreign exchange market.
The Kwacha Arbitrageur