Zambia's New Currency: How Much is a Kwacha Really Worth? | Arthur Speiser Media

Описание: #zambia #kwacha #currency

Hello and welcome! It is good to have you here! Have you heard the tale of the Zambian Kwacha? If not, stay tuned to find out more about how one of the worst performing currencies worldwide, became the second best one!

In many parts of the world, inflation is a major concern. Fear that a recession is going to happen continues to haunt many countries. Some economist already argue that we are already a global recession! Recession or not, one thing is clear people everywhere are feeling the pain. High food prices, astronomical transportation and fuel costs have significantly decreased the standards of living for people everywhere. While hundreds of economies are shrinking, Zambia is experiencing an economic boom. The south African country has seen a reduction in it’s inflation rate from 25.6% in August 2021 to 9.7% in June 2022. Furthermore, The Zambian currency, Kwacha, is now the second-best performing currency in the world after the Russian Ruble, a big improvement from being one of the worst just a few years ago.
Since it’s independence in 1964, Zambian national income has been in an almost continuous decline, relying heavily on its main export: copper. This single commodity made the country vulnerable to a global downturn. When the 2008 global economic recession resulted in a world-wide reduction for demand in copper, it wasn’t a surprise to see Zambia’s economy struggle. Copper prices at the London Metal Exchange (LME) fell from highs of US $8,980 per tonne in July 2008 to as low as US $2,812 per tonne in December 2008. The dramatic decline copper prices led to reduced earnings from copper exports for mining companies and subsequently reduced earnings for the Government from mineral royalties and corporate taxes. Furthermore, employees that were supposed to earn income taxes, also failed to pay those as they have been laid off, due to the falling income from copper. The reduced profitability also translated into lower investments and production resulting in job losses and shut downs of many copper mining companies.
The decreased export earnings led to volatility in the exchange rate of the Kwacha against major currencies. In the last quarter of 2008, the Kwacha depreciated by 26.9% to trade at an average of K4,394.76/USD from an average of K3,462.00/USD in the third quarter. This contributed to higher inflation, particularly because Zambia was dependent on imports for a wide variety of consumer goods as well as inputs for domestic production. The emergence of the covid-19 pandemic didn’t do the economy any favors either. During the pandemic, the Zambian economy entered one of its worst recessions in history, shrinking by 4.2% in 2020. The recession meant that many jobs were lost and as a result savings of households were wiped out. Thus, governments income declined, lowered its ability for future investments, because tax revenues declined and constrained the government’s ability to fund public goods and services and Per-capita income.
However, this did not last long. Over the second half of 2021, the Kwacha appreciated against the US dollar following the election of the opposition’s United Party for National Development (UPND) candidate, Hakainde Hichilema into the president’s office. The new government entered negotiations with the International Monetary Fund (IMF) for support programmes in aims to bring down inflation and domestic borrowing. An agreement for 1.4 billion dollars was reached between the two parties, meant to support the restoration of macroeconomic stability. However, the economic restructuring, expected with an IMF programme, entailed that The United Party for National Development (UPND) implements some unpopular austerity measures such as the removal of electricity and fuel subsidies. As of 2nd August 2022, the Kwacha trades at approximately K16/USD, a mind-blowing improvement from a few years back.
The strengthening currency has been a key contributor to reduction in purchase prices. Firms have been able to control costs despite a global inflation crisis and as a result the lower costs are passed down to consumers in the form of selling price reductions.
The new government kept it’s promises and brought with it positive changes in the country such as;
1) Free Education.
2) The employment of more teachers and health workers (30 thousand and 11 thousand respectively).
3) Export of electricity to South Africa and other countries
4) Provision of financial support to farmers etc.
The progress the new Zambian government has made and in such a short period of time is astonishing and exposes the shortcomings of many governments not only in Africa but also across the globe. Seeing that this kind of change is possible, it is important that other government take notice and try to take their respective economies out of recessions.\

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