Zambia's currency continues to weaken despite high reserves

Zambia has reached record-high foreign-exchange reserves, hitting $4.31 billion by the end of 2024. However, the country is still struggling with its currency, the kwacha. It dropped 0.2% against the dollar on Thursday, marking its eighth consecutive day of losses. This decline makes the kwacha one of the worst-performing currencies in Africa this year. The increase in foreign-exchange reserves was supported by financial aid from the World Bank, African Development Bank, and International Monetary Fund. Despite this boost, Zambia's economy is facing challenges. The main issue is the demand for dollars, which is rising due to increased imports of energy and agricultural goods. The Bank of Zambia recently raised the limit on foreign exchange transactions that commercial banks can conduct, hoping to stabilize the kwacha. They increased the limit from $1 million to $5 million on March 6. While this change led to some temporary improvements, the benefits did not last. Experts believe that the underlying supply and demand issues remain unchanged. Zambia's energy production relies heavily on hydroelectric power. Currently, hydro reservoirs are at critically low levels due to a historic drought. This forces Zambia to import more electricity from neighboring countries. Citizens are also using imported fuel for private generators amid severe domestic electricity shortages.