Zambia hikes banks’ reserve ratio to stem severe currency fall

Key Takeaways

The consequences of the kwacha’s steep depreciation were reflected in Zambia's consumer price inflation in October, which surged to 12.6%, marking the highest rate in nearly two years. The kwacha's devaluation significantly impacts prices, as Zambia relies heavily on imports for products like fuel and fertilizer, making it susceptible to exchange rate fluctuations. The South African nation became the first African country to default on its sovereign debt during the COVID-19 crisis and only recently reached a preliminary agreement with a steering committee representing holders of $3 billion in Eurobonds—three years after Zambia initially defaulted on these loans. The agreement in principle focuses on the key commercial terms for restructuring the 2022, 2024, and 2027 bonds. As part of the deal, approximately $700 million in claims will be permanently waived, and Zambia will receive approximately $2.5 billion in cash flow relief through reduced debt-servicing payments, particularly during the period of the nation's International Monetary Fund program.