The kwacha has continued with its positive performance against the US dollar and other major convertible currencies, breaking the 8 kwacha psychological barrier to an average high of K8.9 to the green paper.
Today, the local unit is trading at an average K8.8 and K8.9 from last week’s K9.2 against the US dollar, according to Bank of Zambia and Cavmont Capital Bank rates.
Experts say the main driver of the improved performance of the kwacha is the continued mismatch in demand and supply, with market fundamentals playing a minor role. On Wednesday, the Kwacha closed at K8.850 / K8.900 – K0.1 stronger than the day’s opening levels of K8.950 / K9.000.
Last month during the launch of the ninth Zambia economic brief, the World Bank said that improved macroeconomic stability, especially a more stable exchange rate had improved conditions for the economic recovery. Other factors include single-digit inflation, the subsequent loosening of monetary policy and a gradual clearance of government expenditure and VAT arrears.
The World Bank also said a longer and heavier 2016-17 rainy season improved overall crop production and power generation, but temporarily disrupted some economic activity in early 2017 (for example in the construction and mining sectors). Given that crop production contributes over 87% to the output of the agriculture sector, these crop production gains are expected to lift the growth of the sector in 2017.
Improved power generation is expected to stimulate economy-wide growth, reversing the impact of two years of persistent power outages, said the World Bank.