Country Report Zambia April 2010

Outlook for 2010-11: Exchange rates

After the turmoil in 2009, which saw the kwacha first depreciate heavily and then recover strongly, currency markets should be less volatile during the forecast period. Foreign-exchange inflows from copper exports are expected to increase. Zambia's Western donors are likely to reduce their financial support to the country, but this will be countered by a rise in inflows from China. Private investors are likely to return to the country only gradually, after having been forced to withdraw quickly in 2009 as global financial markets tightened. Nevertheless, the rebound seen in the kwacha during the latter part of 2009 is likely to translate into a small overall appreciation during 2010, to an average of ZK4,515:US$1. The narrower current-account deficit (in historical terms) and robust level of reserves will mean that the kwacha remains largely stable in 2011, when it is expected to average ZK4,615:US$1.

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