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Zambian kwacha gains after Lungu calls for calm

Business
LUSAKA — Zambian President Edgar Lungu urged investors not to panic as the government won’t resort to foreign exchange controls to arrest a slide in the kwacha, the world’s worst-performer against the dollar in 2015.

LUSAKA — Zambian President Edgar Lungu urged investors not to panic as the government won’t resort to foreign exchange controls to arrest a slide in the kwacha, the world’s worst-performer against the dollar in 2015.

Bloomberg

The decline in the currency of Africa’s second-biggest copper producer “is excessive and not consistent with the movements in the fundamental drivers,” he said in a statement e-mailed by the presidency. The kwacha has plunged 48% this year, the most out of the more than 150 currencies tracked by Bloomberg.

Zambia is committed to “maintaining a liberalised foreign exchange market,” Lungu said. “The business community and the general public are, therefore, urged not to panic, as the government does not intend to revert to foreign exchange controls to shore up the currency and as a measure to cure the speculative distortions.”

Zambia’s currency has been hit by the falling price of copper, which accounts for more than 70% of exports at a time when its worst power crisis yet is curbing production. Mines plan thousands of job cuts, and Zambia’s economic growth rate may drop to 3,4% this year, the lowest since 1998, according to Barclays Plc.

The kwacha advanced as much as 1,6% to 12,13 per dollar in Lusaka, its biggest gain since September 25, and was at 12,24 at 11:03 am. The currency slumped as much as 16% on September 28, the biggest drop on record.

Lungu’s assurance that the country won’t resort to exchange controls backs up statements earlier this month by Finance minister Alexander Chikwanda and Bank of Zambia governor Denny Kalyalya. Lungu may consider controls if the market doesn’t “behave properly,” his spokesman said September 6.

“Market players are urged to play by the rules consistent with the values of a free market economy,” Lungu said.

He also said he directed his government to “increase fiscal interventions” in a bid to improve foreign exchange supplies.

Zambia’s fiscal deficit will reach 8,4% of GDP this year, compared with the government’s budgeted 4,6%, according to Barclays. Rising deficits were one of the key reasons Moody’s Investors Service cited when it cut the country’s credit rating by one level to B2 on September 25.

Reducing the deficit will be difficult as Zambia prepares for an election next year and as economic growth slows to 3,4% in 2015, the slowest pace since 1998, Barclays said September 25. Chikwanda will present his 2016 budget to parliament October 9.