By BUUMBA CHIMBULU
THE Kwacha is likely to recover some of the current losses in the medium-long term before trading stable in the region of K16 to K18 per United States dollar, according to a forecast by Zanaco bank plc.
Zanaco is basing this outlook for the local unit on elevated copper prices and positive effects of external debt restructuring.
It is also basing it on the prolonged sentiment positivity on the back of International Monetary Funds (IMF’s) extended credit facility as well as a potential reversal in the complete dollarisation of mining taxes.
The Kwacha is currently trading between K17.975 and K18.025 per United States dollar.
“We expect a combination of external debt restructuring and IMF bailout package to attract offshore flows via Foreign Direct Investment (FDI), budget support in form of donor aid as well as investment into fixed income space at the time that Zambia has upped its borrowing appetite,” Zanaco said in its monthly newsletter.
Zanaco however stated that the above stability view over the medium-long term had a number of risks that my see it trade above the aforementioned range if they materialised.
It stated that the first key risk was failure to successfully restructure external debt thereby keeping the economy in the default status.
According to the bank, in an event of this failure, Zambia may have to restart servicing Eurobond debt and thus leading to heightened public sector foreign exchange demand.
“The second is continued dollarisation of all mining taxes. Third, and given that advanced economies have started raising interest rates, emerging economies such as Zambia may not see as much international investor flows as we currently expect in the above outlook,” Zanaco indicated.
In the interim, Zanaco stated, and with no sight of supply side improvements, the Kwacha was set to continue posting losses in the short term with the currency likely to see a low of K20 per dollar.
It stated that this was because with improved economic conditions, Zanaco expected foreign exchange appetite from importing corporates to keep demand on a solid path while ongoing dollarisation of mining taxes would keep the supply side generally stifled.
“In addition, ongoing geopolitical tensions between the US and Russia and stronger United States dollar are likely to keep the price of crude oil elevated (and potentially rising) thereby leading to a growing oil import bill,” Zanaco stated.
