Zambia inflation nears 2-year high amid currency troubles
In December, Zambia experienced its highest inflation rate in nearly two years, primarily driven by the currency's significant depreciation since the country's status as Africa's inaugural pandemic-era sovereign defaulter in 2020.
This depreciation increased the costs of imported goods, such as cereals and meat. Consumer prices rose by 13.1% compared to the previous year, a slight uptick from the 12.9% recorded in November, according to Statistician-General Mulenga Musepa's announcement in Lusaka on Thursday.
The average inflation rate for the year stands at 10.9%, aligning with the central bank's projections. Notably, costs experienced a 1% increase during the month. The surge in inflation is primarily attributed to food prices, while non-food prices saw a modest deceleration, influenced by stable fuel prices in December.
Zambia needs more dollars due to factors such as a decline in copper production, which is the country's primary source of foreign exchange, and lower metal prices. This scarcity is exacerbated by challenges in debt negotiations, particularly with China regarding bondholder losses, putting additional pressure on Zambia's financial recovery efforts. In response to mounting inflation and to strengthen the kwacha, Zambia's central bank has implemented measures such as a 200 basis points increase in borrowing costs to 11% and an elevation of reserve-ratio requirements for banks to 17%. In its upcoming February meeting, the central bank may consider further raising borrowing costs. Despite the challenges, there are positive developments, including the International Monetary Fund's approval of a $187 million loan payout to Zambia and the nation's revision of a restructuring proposal for $3 billion of bonds. While the path to recovery is steep, it is not deemed impossible.