The Zambian Kwacha has been reported to be the best performing currnecy in the world following the scrapping of two laws restricting foreign-exchange trade in Africa’s second-biggest copper producer, triggering the kwacha’s biggest gain against the dollar in 15 months, Bloomberg news has reported.
According to Bloomberg, legislation introduced in 2012 that bansned the use of dollars and other currencies within Zambia was revoked on Friday and Finance Minister Alexander Chikwanda told reporters in Lusaka. The government also abandoned a law that requires companies to notify the Bank of Zambia of foreign transactions, Chikwanda said at the briefing while flanked by officials from the central bank.
“These regulations were passed principally to support the implementation of monetary policy,” he said. “Challenges have arisen in the implementation of these statutory instruments. To allow for further consultation government has decided to revoke these statutory instruments with immediate effect.”
Before Friday’s announcement, the kwacha had weakened by more than 13 percent against the dollar this year, more than any other African currency tracked by Bloomberg.
The Zambian unit has been hit by copper prices that have retreated 13 percent since January 1 and policy announcements that damaged business confidence, Fitch Ratings said on Friday. A weaker currency may stoke inflation in Zambia’s import-dependent economy and push up costs of repaying foreign debt, it said.
Zambia’s move to abolish foreign currency restrictions differs with the approach by Ghana which last month tightened restrictions in a bid to stem declines in its currency.
“Chikwanda’s announcement demonstrated the absolute determination of the Zambian government to do whatever might be needed to halt the currency slide,” Razia Khan, head of Africa research at Standard Chartered Bank Plc in London, said in a reply to e-mailed questions. “Many market participants had seen those statutory instruments as unhelpful -– although there is probably some debate around this.”
The currency gained as much as 3.4 percent and traded 2.9 percent stronger at 6.152 per dollar by 5:26 p.m. in Lusaka, the biggest gain since Dec. 24, 2012 and the world’s best performer today. The kwacha earlier traded as much as 1 percent weaker. Yields on Zambia’s $750 million Eurobonds maturing in 2022 dropped the most in two weeks.
The laws were revoked after the government held meetings with business leaders who were “strongly” opposed to the regulations, Chikwanda said.
The implementation of the laws had a negative impact on businesses’ ability to contract foreign loans, Geoffrey Sakulanda, president of the Zambia Association of Chambers of Commerce and Industry said in an interview at the Finance Ministry after the announcement.
“This is the best economic news we’ve had since the Patriotic Front government came into power” in 2012, Trevor Simumba, managing director of Sub-Saharan Consulting Group Zambia, said by phone from Lusaka today. “It’s going to calm the market and also incentivize investors that were holding back to invest.”
The World Bank supports the revocations of the laws, known as statutory instruments 33 and 55, it said.
The move will improve confidence in policy making, Kundhavi Kadiresan, country director for Zambia, Malawi and Zimbabwe said in an e-mailed statement on Friday.
Fitch affirmed Zambia’s B credit rating and said the outlook for the southern African nation is stable. It warned that expanding government spending and the weakening economy posed risks to economic growth. The company cut its assessment of Zambia’s debt by one level to five steps below investment grade in October.
– Bloomberg News