The recently held International Monetary Fund and World Bank Spring meetings rekindled debt restructure hopes for Africa’s second largest copper producer Zambia. This was after it was established that China, a key creditor has eased its stance on debt renegotiations which will allow for multilateral development banks to be exempt from taking haircut losses earlier proposed. For nations like Zambia deep in the labyrinth of debt restructure, this was reprieve and a fuel of hope for the long awaited breakthrough towards fiscal recovery. Expectations from various stakeholders the largest being the World Bank, were that creditor assurances would come in as early as in the next few weeks.
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The Southern African nation is at a critical stage of its economic recovery life cycle and is due for the second IMF extended credit facility second tranche of $188 million. Zambia was granted an economic life line by the Washington based lender to help absorb balance of payment support pressures earlier on August 30, 2022. An IMF Article IV staff mission team recently completed a review revealing key miles stones attained but for debt restructure which is the biggest of all.
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Markets sought for clues in anticipation of Tuesday April 18 meeting for which it was hoped that a clearer position would be given after the China lead creditors meeting convened. This gave the copper currency momentum as corporates offloaded dollars to hedge against losses ahead of an anticipated outcome. The Kwacha has clawed back about 16% of the 122 day long losses incurred as market fatigue thickened on the back of delayed progress on renegotiation of fiscal obligations. After fruitful deliberations on Tuesday, Zambia’s creditors will reconvene next month. Progress on the matter has widened odds of a likely memorandum of understanding which is critical to the disbursement of the second ECF tranche which has fallen due.
“Uncertainty in the currency faculty will persist which is typical of a fatigued but liquid FX market. We can expect inflation risks and one other aspect is that it is not known to what extent the central bank can keep selling dollars to stabilize the Kwacha. Until a clear position is given the foreign exchange markets will remain volatile,” ZATU Financial Consultants Lead Partner Munyumba Mutwale said.
The currency market however has remained elastic to debt restructure news but with current market fatigue could spell Kwacha bears until the meeting happens. On the downside, the red metal hotspot grapples with a cost of living quagmire characterized by rising price pressures exacerbated by a weakening Kwacha and rising crude futures. Copper as a bellwether for economic pulse remains bullish on the London Metal Exchange which is to some extent supporting Zambia’s growth fundamentals on the upside.
As at midday in the capital Lusaka, the Kwacha had reversed some earlier gains to trade for 17.14/17.48/USD.
The Kwacha Arbitrageur