Lusaka ~ Fri, 23 Jul 2021
By Brightwell Chabusha
The continued appreciation of the kwacha against the United States dollar to K21.39 as at 23rd July 2021 from K22.64 on 1st July, 2021, largely reflects changes in the supply of foreign exchange and broad improvements in market expectations, government has said.
The Ministry of Finance stated that stability is consistent with the broad goals set out in the Economic Recovery Programme (ERP), which was launched by President Dr Edgar Chagwa Lungu in December 2020.
“Recent developments in the foreign exchange market include the improved foreign exchange flows from the mining sector in view of the strong recovery in copper prices and production,” read the statement.
“This has led to a significant expansion in the trade balance estimated at US$1.9 billion during the period January to May 2021 compared to US$576.8 million over the same period in 2020.”
Government further disclosed that Significant flows from non-resident investors seeking to purchase government securities, evidenced by the oversubscription at 116 percent in the bond issuance held today also contributes to the developments in the foreign exchange market.
It has explained that this has bolstered liquidity in the foreign exchange market and has subsequently led to the substantial reduction in the hitherto excess demand.
Government has further mentioned that another factor that has contributed to the developments in the foreign exchange market is the scaled up market support by the Bank of Zambia in view of improved flows from the mining sector.
“Further, there has been a confidence boost in the market following the announcement by the IMF to allocate Special Drawing Rights (SDRs) to its members in August. The SDR allocation is expected to increase international reserves by approximately US$1.3 billion in August,” it stated.
“In addition, the Bank of Zambia has continued with the gold purchase programme through which about US$22 million has been added to the international reserve position. With the above developments and continued implementation of the measures in the ERP, the Kwacha is likely to remain resilient.”