The consumer price index, which measures the annual inflation rate in Zambia, quickened for the 14th month to 15.5% in August 2024, the highest point since December 2021, up from 15.4% in the prior month, Statistician-General Goodson Sinyenga said in a statement.
The upward trend is mainly attributed to El Niño-induced drought weighing on food prices. Prices of food, which make up more than half of the inflation basket, rose to 17.6% from 17.4% last month and non-food price growth slowed to 12.5% compared with 12.6% in July.
On a monthly basis, consumer prices rose by 0.9% in August, after a 1% advance in the previous month. The extreme drought has constrained the economy, withered crops, curtailed hydropower-generation and led to a surge in costly imports that have weakened the kwacha.
The dry spell has complicated efforts by the central bank to return inflation to its 6% to 8% target band by next year and meant that it’s had to keep its key interest rate higher for longer.
The bank this month held the rate at a seven-year high of 13.5% after six straight hikes of a combined 450 basis points. It’s also aiming to conclude consultations over plans to curb the use of foreign currency in domestic transactions to bolster the kwacha.
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Soaring inflation and high interest rates have plunged several countries in Africa including Zambia into a severe cost of living crisis.
Zambia defaulted on its external debt in October 2020, including $3 billion in Eurobonds. In June 2022, the official creditor committee (OCC) for Zambia, consisting of bilateral government lenders, committed to negotiate debt restructuring terms on bilateral non-commercial debt, paving the way for a funded IMF program signed in August 2022 for Special Drawing Rights (SDR) 980 million (about $1.4 billion), of which approximately $555 million has been disbursed, as well as negotiations on outstanding Eurobonds.
In March 2024, the government reached an agreement-in-principle with Eurobond holders. Subsequently, on June 11, 2024, the government exchanged its three outstanding Eurobonds (due 2022, 2024, and 2027) for two new amortizing bonds ($1.72 billion with a final maturity in 2033 and $1.36 billion with a final maturity in 2053 in the base case as defined in the terms and conditions of the notes).
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The new bond documentation includes a “most favored creditor” clause to ensure ensuing deals with other commercial creditors and bilateral creditors will not happen on more preferential terms.
In June, Zambia exchanged its three Eurobonds for two new amortizing bonds, a $1.72 billion bond with a final maturity in 2033, and a $1.36 billion bond with a final maturity in 2053 in the base case defined in the terms and conditions. #Inflation in Zambia Accelerates to 15.5% CBN Defends Naira with $39m in Forex Market
