Africa’s second largest red metal producer Zambia just took a positive cue from developments at the 2022 IMF Spring meetings in Washington DC when China, the worlds second largest economy, finally agreed to assist the Southern African nation, under the common framework of the G20, in its quest restructure its foreign debt. This follows series of engagements that kept markets in fret over when Zambia would seal a financing deal with the Washington based lender, the International Monetary Fund (IMF). Zambia has been in a debt labyrinth that saw the red metal producer slip coupon payments on its dollar bonds in 2020 as fiscal pressures thickened. On news of the latest development and the Finance Ministers request to the G20 members, urging them to honor their pledge to assisting emerging market nations ease their debt burden, the copper currency, the Kwacha rallied in gains on Friday April 23.
READ ALSO: Zambia targets IMF Deal Mid-Year, to Unveil 8th Growth Plan and Debt Contraction Regulation
Opening the said day at 17.465, the Kwacha rallied 3.6% to 16.825 for a unit of dollar after then reversing 0.9% of the steam by close of business to settle at K16.925. Nikiwa Capital Chief Analyst Munyumba Mutwale in his commentary did attribute the winning streak momentum to corporate and offshore players offloading dollars in panic as sentiment for Zambia’s restructure brightened.
Zanaco’s Economic Research Head Dr. Patrick Chileshe coined a similar attribution commentary pointing to a levitation in sentiment around the development that made offshore players sell dollars as the copper producers sovereign outlook brightened with greater restructure odds by mid year.
However global markets continue to be dictated by the autopsy effects of geopolitics that have scaled appetite for dollar denominated assets as uncertainty persists. With excessive inflation the US Fed is expected to strengthen the dollar environment in bigger rate hikes that will keep emerging market currencies under pressure. Zambia continues to experience asset sell – off pressure in the money markets as new monies for its government securities eludes the domestic markets and repatriated maturities adding pressure on the foreign exchange markets. Market analysts predict these could the Kwacha’s pressure points the Kwacha in the medium term.
For Zambia delays in closing a bailout program whose application was formally made in December 2020, has precipitated immense investor weariness in the market manifesting in flight to quality investor tendencies which has kept the copper currency under pressure persistently. Growth is another area that has contributed to dollar demand as extension for a net importer entails increased dollar demand for energy, agribusiness, mining and manufacturing.
The Kwacha is nonetheless expected to extend gains into next week or two as the sentiment steam persists with more clarity around the next steps. Expected weekly wider trading range is 16.450-17.450 down from 17.000-17.800.
The Kwacha Arbitrageur