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Zambia Bracing for Impact After Trump Win Spurs Dollar Demand

V.Davis4 hr ago
(Bloomberg) - Zambia's central bank governor warned that a rally in the dollar fanned by Donald Trump's election victory may place strain on its economy and has galvanized efforts to reduce its reliance on the greenback.

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"A strengthening dollar is not good for us," Bank of Zambia Governor Denny Kalyalya told reporters Wednesday in the capital, Lusaka. "It draws away capital flows from us and contributes to further inflation."

Emerging market currencies have hit a three-month low as investors bet Trump's win will deliver the higher tariffs he promised while campaigning for the White House, stoking inflation and limiting the Federal Reserve's ability to cut US interest rates.

That could hinder Zambia's ability to get cheaper financing after being locked out of international capital markets because of high borrowing costs and a default in 2020, just as it's at the final stages of completing a painful debt restructuring.

Kalyalya, speaking after raising Zambian interest rates to a seven-year high of 14% to defend the kwacha and cool inflation, said the shift in outlook was a "concern."

Pointing at the potential spillovers from a stronger dollar, he also said that Zambia and other African countries are working on ways to reduce their reliance on the greenback and promote local currencies, citing the Pan-African Payment and Settlement System.

The initiative, launched in 2022 under the new African Continental Free Trade Area, would avoid routing regional cross-border payments offshore for clearing via US or European banks.

"We're coming up with some ideas of how together we can move to promote the use of the kwacha for our local transactions," Kalyalya said, calling PAPSS one of the most promising projects underway. The country is separately trying to restrict the use of foreign currencies in domestic transactions, which create local dollar shortages and weigh on the kwacha.

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