The Kwacha Comeback: What It Means For Zambia’s Economy

By Luyando Mooya

The Zambian Kwacha has emerged as one of the world’s best-performing currencies in 2025. Since the beginning of the year, the Kwacha has appreciated by approximately 19% against the U.S. dollar, strengthening from K28.99 in December 2024 to about K23.00 by mid-July 2025. This remarkable rally has been driven by a combination of domestic economic recovery, structural reforms, and favorable external conditions. But what exactly is fueling this surge, and what does it mean for the local market?

What’s Driving the Force?

1. Agriculture Rebound
One of the most significant contributors to the Kwacha’s appreciation has been the recovery in the agricultural sector. Following a devastating drought in 2024, Zambia experienced a bumper maize harvest in 2025, producing over 3.7 million metric tonnes. This resulted in a surplus of nearly 500,000 metric tonnes available for export.

The increased maize supply has had a multi-layered impact on the economy. Firstly, it has boosted foreign exchange earnings through maize exports, increasing the supply of U.S. dollars in the market and strengthening the Kwacha. Secondly, the surplus has driven down domestic maize prices, helping to reduce food inflation which is a major component of Zambia’s inflation basket.

Lower inflation not only eases the cost of living but also supports a more stable currency by improving investor confidence and reducing pressure on monetary policy. Additionally, the improved trade balance and positive market sentiment surrounding the agricultural rebound have further reinforced the Kwacha’s upward momentum.

2. Debt Restructuring and Fiscal Reforms
Zambia’s successful debt reforms have also played a pivotal role in restoring investor confidence. The restructuring process has significantly reduced the country’s debt burden, freeing up resources for development and reducing the need for further borrowing. This has improved Zambia’s creditworthiness, making it more attractive to foreign investors.

Credit rating agencies such as Moody’s and Fitch have responded positively, upgrading Zambia’s outlook due to the government’s commitment to reforms. These upgrades signify financial stability and have encouraged foreign portfolio investment, increasing demand for Kwacha-denominated assets.

At the same time, fiscal reforms such as cutting deficits, improving tax collection, and controlling public spending have demonstrated fiscal discipline. These measures have helped reduce inflationary pressures and created a more stable macroeconomic environment, further supporting the Kwacha’s appreciation.

3. Copper Boom
Zambia’s copper sector, the backbone of its economy, has also seen a dramatic resurgence. In the first quarter of 2025, copper production rose by nearly 30%, increasing from approximately 173,000 to 224,000 metric tonnes. This surge in output, particularly from key mines like Konkola Copper Mines and Mopani Copper Mines, has significantly boosted export earnings.

Copper accounts for over 70% of Zambia’s export revenues, so the increased production has led to a substantial inflow of foreign currency. This has improved the supply of U.S. dollars in the market, easing pressure on the Kwacha. The rebound in copper production has also restored investor confidence in the mining sector, especially when combined with the country’s improved fiscal outlook.

With inflation easing and economic growth projected at 6%—the highest since 2021—the macroeconomic environment has become increasingly favorable, further strengthening the Kwacha.

4. Foreign Investment Inflows
Another key driver of the Kwacha’s appreciation has been the rise in foreign portfolio investment. As international investors purchase Zambian government bonds, equities, and other financial instruments, they bring in foreign currency—primarily U.S. dollars—which must be converted into Kwacha.

This increased demand for the local currency has helped push up its value. These capital inflows have also boosted foreign exchange reserves and improved liquidity in the financial markets. More importantly, they reflect growing investor confidence in Zambia’s economic prospects. A stable and appreciating currency, combined with structural reforms and improved governance, has made Zambia an increasingly attractive destination for long-term investment.

Economic Implications of the Kwacha’s Rise

While the strengthening of the Kwacha brings several benefits, it also presents certain challenges for the local economy.

Positives
#Lower Inflation: Annual inflation dropped to 14.1% in June 2025, the lowest in 14 months. This is largely due to reduced food prices and cheaper imports.
#Cheaper Imports: A stronger Kwacha lowers the cost of imported goods and fuel, easing pressure on businesses and consumers.
#Consumer Relief: The government and economists have urged businesses to pass on the benefits of a stronger currency by reducing commodity prices, offering relief to households.

Challenges
#Export Pressure: A stronger Kwacha can make Zambian exports more expensive and less competitive on the global market, potentially affecting trade balances in the long run.
#Policy Dilemma: The Bank of Zambia may face pressure to cut interest rates in response to the stronger currency and lower inflation. However, doing so could risk undermining monetary stability if not carefully managed.

Conclusion
The Kwacha’s comeback in 2025 reflects Zambia’s resilience and the positive impact of coordinated policy efforts across agriculture, mining, fiscal management, and investment promotion. While the appreciation brings welcome relief to consumers and signals economic recovery, it also calls for careful policy calibration to ensure that the gains are sustainable and inclusive. As Zambia continues this path, maintaining investor confidence, export competitiveness, and macroeconomic stability will be key to securing long-term prosperity.