ADVERTISEMENT

Zambia’s Bonds, Kwacha Fall as Traders Fret Over Power Shortages

Zambia’s Bonds, Kwacha Fall as Traders Fret Over Power Shortages

(Bloomberg) --

Zambia’s kwacha weakened to a six-month low and its Eurobonds fell as importers bought dollars to hedge against further declines, while a power crisis weighs on the economy.

The kwacha depreciated 1.7% to 14.07 per dollar as of 1:54 p.m. in Lusaka, the capital, extending its fall this month to 5.5%, the most globally after Chile’s peso. The yield on Zambia’s $750 million of bonds due in September 2022 rose 42 basis points to a record high of 22.3%, with the price dropping to 66 cents on the dollar.

The economy of Africa’s second-biggest copper producer will grow by the slowest pace this century in 2019, as a drought in the southwest reduces farm output and hydropower generation. Higher mining royalties and falling copper prices, meanwhile, have hurt production in the industry that accounts for about 70% of foreign-exchange earnings.

Zambia’s Bonds, Kwacha Fall as Traders Fret Over Power Shortages

As households and businesses endure rolling power cuts lasting as long as 18 hours a day, the government is seeking to import electricity from nearby South Africa. It needs to pay about $40 million up front to access supplies, and this could add to the kwacha’s woes.

“The accentuation of the depreciation is likely caused by slight panic among local importers worried about further currency depreciation into year end,” said David Willacy, senior foreign exchange trader at INTL. FCStone Inc. in London. “Now that Zambia needs to import power from South Africa, this will increase the import bill and place pressure on the kwacha.”

To contact the reporters on this story: Matthew Hill in Maputo at mhill58@bloomberg.net;Taonga Clifford Mitimingi in Lusaka at tmitimingi@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Paul Wallace, Robert Brand

©2019 Bloomberg L.P.