Kwacha extends slump as drought worsens Zambia’s economic woes

Zambia’s currency weakened against the dollar for an 18th successive day, cementing its position as the worst performer in emerging markets since March, as a severe drought added to constraints in copper production.

The kwacha on Friday extended its losses since April 8 to 8.4% and traded close to record lows of around 27 per dollar. That’s the worst decline among 32 most widely traded EM currencies and followed previous slumps in February and March.

“The fundamentals are kwacha negative,” said Gergely Urmossy, an EM strategist at Societe Generale SA. “Zambia’s macro outlook is not very positive as copper production has been weak for a very long time. And the most recent droughts are a challenge for power generation, which is an additional constraint.”

The country has been hit hard by El Niño-induced drought which has impacted agricultural production and forced it to import more food. The lack of water in the southern African nation, which relies on hydropower for much of its electricity generation, has also affected mining output.

In addition, “the Bank of Zambia’s reserves have not been increasing, which is also a concern and weighs on investor sentiment towards Zambia” Urmossy said.