$1.25bn Eurobond to boost Kwacha

THE Kwacha is among several currencies in Africa that have sharply depreciated against the United States dollars although the US$1.25 billion euro bond recently acquired by Zambia is likely to ease pressure on the local unit in the medium term, Barclays Bank Africa chief economist Jeff Gable says.

Mr Gable said the local unit which has been under pressure due to, among other issues, trade deficits arising from the falling copper prices on the international market and strong US dollar, will be cushioned by the sovereign debt in the medium term but the Kwacha is expected to depreciate in the longer term.
Giving a presentation on Zambia and the global economy on Wednesday evening, he projected that the local unit will trade at K8.10 in the last quarter of this year and hit K8.20 and about K8.43 in the first and second quarter of next year when the foreign exchange reserves from the Eurobond reduce.

“Large current account deficits are a drain on foreign exchange as seen in the trade deficit Zambia has recorded [but] in the next few months, the proceeds from the euro bond will provide more foreign exchange reserves for the country and the country will be less vulnerable and potentially gives more power to support the foreign exchange market,” he said.
Mr Gable said the rebound of demand for copper, which is Zambia top export earner, by China will stimulate copper prices and support the Kwacha.

China has reduced demand for copper resulting in the fall of copper prices on the international market following that country’s switch to a service-led economy and this move blunts manufacturing demand and threatens to pin back economic growth to the weakest pace in a quarter of a century.
He said Zambia which produces copper at about US$4,000 per tonne is more disadvantaged than countries like Chile whose production cost is around US$1,000.