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Zambia’s kwacha now Africa’s best performing currency as Rand, Naira, others struggle

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Following consistent drastic monetary policy interventions by its central bank, Zambia’s currency, the kwacha, has become Africa’s best-performing currency against the US dollar thus far this year.

However, analysts suggest the currency will only many its steady rise if the nation draws in more foreign investment.

According to data from the London Stock Exchange Group (LSEG), the kwacha has strengthened 13.8 percent to 22.8 percent versus the US dollar in 2024 as a result of the central bank’s decision to reverse a decline in the value of the currency that had increased inflation earlier this month by raising interest rates and reserve ratios for commercial banks.

Danny Greef, Co-Head of Africa at research firm ETM Analytics noted that “The kwacha’s performance this year has been remarkable.”

Zambian authorities have held foreign investment at bay, and the value of the kwacha is decreasing due to the country’s unfinished debt restructuring, which is in its fourth year. Although copper production, the country’s major foreign exchange earner, has also fallen despite government efforts to boost the sector.

“The conclusion to the external debt restructuring exercise will also be instrumental to providing clarity on the outlook for hard-currency and fiscal obligations and unlock pent-up portfolio- and fixed investment flows into the country.”

Bank of Zambia governor Denny Kalyalya told a public forum earlier this week that “The measures that we have taken… are meant to stem some of the demand, which we thought was excessive as we anticipate supply, which mainly comes from the mining sector.”

Although the value of the kwacha has somewhat declined this week from 22.5 to $1, it is still more than 20% higher than the record low of 27.23 achieved on February 6.

“What is expected is an adjustment that will stabilise around the 21-22 per dollar,” economist Munyumba Mutwale said, adding that increased foreign currency flows were required for the kwacha to make further gains.

African currencies encountered severe difficulties in 2023 as a result of the global monetary tightening cycle. The official exchange rates of the South African rand, Kenyan shilling, and Nigerian naira had significant fluctuations in December 2023, falling by an average of 27% from 25% in November.

Although the three countries’ currencies have continued to decline, as has the value of other continental economic giants like Egypt, it seems Zambia has managed to stabilise its economy in spite of its foreign debt issues.

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Ethiopia might devalue currency to secure IMF loan

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Ethiopia may need to decide on a big currency devaluation soon to get a rescue loan from the International Monetary Fund (IMF).

In December, East Africa’s most populous country went bankrupt, making it the third African country in as many years to not pay its debts. The country already had high inflation.

Ethiopia hasn’t gotten any money from the IMF since 2020, and its last loan deal with the fund fell through in 2021. In late 2022, the federal government and a rebellious regional authority made a deal to end a cold war that had been going on for two years.

Although the IMF has not said that currency reform is necessary for its backing, it however maintained that progress was made during its most recent visit. However, the Fund usually favours flexible, market-determined exchange rates. Ethiopia has requested $3.5 billion of support from the IMF, sources told Reuters last year.

The birr currently trades at between 117 and 120 per dollar on the black market, which is more than double the official rate of about 56.7. This is because there is a constant lack of foreign cash and the exchange rate is tightly controlled.

“It seems that the Ethiopian authorities have found accepting the demands of the IMF hard,” said Abdulmenan Mohammed, an Ethiopian economic analyst based in Britain.

“The Ethiopian authorities are worried about the devaluation of the birr, (which) would have serious negative economic repercussions, including soaring inflation… and surging foreign currency denominated debts in terms of birr.”

Early in 2021, Ethiopia asked the G20’s Common Framework to restructure its debt. This was set up in response to the COVID-19 pandemic to include new creditor countries like China and India. Other African countries like Tunisia and Zambia also suffered a similar fate with their foreign debt at the time.

As of the end of March, Ethiopia’s foreign debt totals $28.2 billion. According to Boston University’s Chinese Loans to Africa Database, the country’s biggest bilateral creditor, China, agreed to stop collecting its debts in August 2023. From 2006 to 2022, China promised to give the country $14 billion.

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Nigerian govt to save N1.5tn from removal of electricity subsidy

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The Nigerian government says a recent increase in the price of electricity for Band A customers to N1.5tn means it could save more this year.

The government also said that about 2.5 million meters would be installed this year to close the metering gap across the country and make sure that people pay the right amount for electricity.

The Federal Ministry of Power, in a document made public by Bolaji Tunji, who is the media assistant to the power minister, on Wednesday evening said that the recent tariff change would save the country N1.5tn.

It said, “FG (Federal Government) to save N1.5tn with tariff adjustment. FG still subsidising Bands below A. Pricing change will help improve liquidity to the NESI (Nigeria Electricity Supply Industry).

“Discos (power distribution companies) will be sanctioned for supplying less than 20 hours to Band A consumers.”

Electrical consumers in the Band A group, which makes up about 15% of the country’s 12.82 million power users, no longer get any subsidies on their bills. Those affected would now pay N225 per kilowatt-hour, which is about 240% more than the old rate of N68/kWh.

In reaction, manufacturers and organized labour spoke out against the tariff increase that about 1.9 million consumers will have to pay. The increase was passed and announced by the Federal Government on April 3, 2024.

For the past few months, the terrible state of the electricity supply has gotten even worse because gas producers to gas-fired thermal power plants have stopped sending gas to those plants because they owe $1.3 billion in debt.

Meanwhile, the argument around subsidies of essential products and services in Africa remains active with some analysts positing that the earning power and GDP of most countries in the continent puncture the likely gains of a no-subsidy regime, given the lack of economic means by a large percentage of the public.

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