The recent depreciation of the Zambian Kwacha is largely a market rebalancing process driven by changes in the supply and demand for foreign exchange.
The key question is whether the current weakness represents a temporary adjustment or the beginning of a prolonged trend, as sustained depreciation could have significant implications for inflation and the broader economy.
The Kwacha’s recent performance can be viewed as a correction following a strong first half of 2026. The currency strengthened from approximately K20.31 against the US dollar in January to K17.87 in June, before weakening to around K19.90 in early October.
The current pressure reflects a changing balance between the availability of US dollars and the demand for them. Although Zambia continues to earn substantial foreign exchange from copper exports, with prices reaching approximately US$14,000 per tonne, businesses still require dollars to import fuel, machinery, mining equipment and other essential goods.
Consequently, strong export earnings do not automatically translate into sufficient dollar liquidity in the domestic market at the precise time importers need foreign currency to meet their obligations.
Fuel prices have become a particularly important factor in this equation. International oil prices have risen above US$100 per barrel, increasing Zambia’s petroleum import bill and putting additional pressure on demand for US dollars.
Changes in fuel-import arrangements have also shifted more petroleum-related foreign exchange requirements directly into the commercial market, adding to the demand for dollars.
At the same time, the strength of the US dollar in international markets has contributed to the pressure on the Kwacha. The Bank of Zambia’s decision to reduce its policy rate to 10.75 per cent is not the principal cause of the currency’s depreciation.
However, lower interest rates can reduce the relative attractiveness of Kwacha-denominated assets, potentially weakening one source of support for the local currency.
The more immediate concern is the possibility that depreciation could trigger a second round of economic effects. A weaker Kwacha increases the cost of imported fuel and production inputs.
Higher fuel prices, in turn, raise transportation, manufacturing and distribution costs, which businesses may pass on to consumers through higher prices.
There is also the risk that expectations of further depreciation could reinforce the pressure on the currency. If businesses anticipate that the Kwacha will continue losing value, they may seek to purchase dollars earlier than necessary to protect themselves against future increases in import costs.
Such behaviour can increase demand for foreign exchange and place additional pressure on the local currency.
Although the present situation is primarily an issue of foreign exchange liquidity and market adjustment, it also highlights a deeper structural challenge in Zambia’s economy: the copper-oil paradox.
Copper exports generate much-needed foreign exchange, while fuel imports and other external payments absorb a substantial portion of those earnings.
Addressing this challenge requires more than efforts to defend a particular exchange-rate level. Zambia needs to strengthen its capacity to generate foreign exchange sustainably while allowing the currency market to respond to changing economic conditions.
A critical part of this strategy is diversifying the country’s export base. Agriculture, agro-processing, manufacturing, tourism, services, regional trade and value addition in the copper industry all offer opportunities to expand foreign exchange earnings beyond the traditional reliance on mineral exports.
Greater domestic production can also reduce the need to import certain goods, helping to ease pressure on foreign exchange demand. Developing local industries, improving productivity and expanding access to regional and international markets would therefore contribute to a more balanced and resilient economy.
Ultimately, the long-term stability of the Kwacha will depend not only on copper prices, oil costs or monetary policy, but also on the strength of Zambia’s productive capacity.
A resilient currency requires an economy capable of earning foreign exchange from multiple sources, reducing unnecessary import dependence and sustaining growth even when global commodity markets become unfavourable.
By Kelvin Chisanga
