Market News

(Bloomberg) -- Zambia’s plans to restrict the use of foreign exchange in domestic transactions are aimed at stabilizing the nation’s currency, central bank Governor Denny Kalyalya said, as his organization finalizes consultations on the proposals.

The Bank of Zambia announced its intentions in June and has been consulting market players since then. The meetings are ongoing and an implementation date has yet to be decided, he said in an interview in Pointe aux Piments, north of the Mauritian capital of Port Louis, on Thursday. The city hosted the annual meeting of the Association of African Central Banks this week.

“We are bringing order to our currency,” Kalyalya said. “When you have other currencies intervening as mediums of exchange, it blunts your monetary policy.”

The Bank of Zambia’s initial announcement drew criticism and questions over the timing, given that the economy is still recovering from a years-long debt default. The southern African nation is also grappling with its worst drought on record that’s hit food production and hydropower generation. Those factors have contributed to volatility in the kwacha, which has weakened 22% against the dollar over the past 12 months.

“When is the right time?” Kalyalya said when asked about the plans to dedollarize the economy. “We are buffeted by all these challenges every now and again.”

While dollars aren’t widely used in Zambia’s economy, some mall landlords charge tenants in foreign currency and car dealers often do too. The problem is far more pronounced in southern neighbor Zimbabwe. That country has also introduced measures to dedollarize its economy, including a new local gold-backed currency, the ZiG, in April.

The Bank of Zambia governor said his nation’s energy crisis — households have three hours or less of electricity a day — is unprecedented.

Mine operators in Africa’s second-biggest copper producer have so far been able to avoid production cuts through importing their own electricity. Yet the worse-than-expected and widening power deficit is impacting other sectors. The government has cut its 2024 economic growth forecast to 2.3%.

The central bank has yet to fully assess the economic impact of the intensifying power crisis, according to Kalyalya. 

“Clearly, it’s pointing to a very difficult situation,” he said. “The competing needs have now multiplied rather than reduced.”

--With assistance from Matthew Hill and Taonga Mitimingi.