According the EIU report, the kwacha is forecast to hover around K12.58 to a United States dollar before things stabilize as projected in the first quarter of next year.
“The government’s failure to reach a loan agreement with the IMF has unnerved investors who fear an external debt default which would lead to capital outflows. This is reflected in the yield on Zambian Eurobonds which has risen from 7% to in February 2016 to 16% in early 2019,” reads the report.
The report has however projected that the economic outlook may improve if government reschedules its repayment plan for Chinese debt and also sign an agreement with the IMF.
“To improve access to foreign exchange, local businesses suggest approaches such as developing good relationships with the banks. Zambia’s precarious external liquidity position and the challenges it will face in servicing hard-currency debts falling due in 2019 will heighten expectations of devaluation and constrain availability of funding,” reads the report, adding that the situation is set to improve in 2020 following a forecast of improved copper prices.
From 2020, the EIU forecasts that the exchange rate will stabilize against the dollar on rising world copper prices which will boost export earnings.
“We forecast an average exchange rate of K12.40 to 1$,” states the report.
The outlook projects that things may improve in 2020 as long as government does not default on debt obligations.
The report dubbed “Hard Currency Availability and Debt Sustainability in Ethiopia, Kenya, Nigeria, Tanzania and Zambia” says the Southern African country has the highest risk distress out of the countries covered.