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Zambia Launches Financial Stability Facility Amid Drought and Inflation Crisis

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Zambia Central Bank Drought Inflation Financial Stability

Zambia‘s Central Bank has initiated a Stability and Resilience Facility to protect the nation’s financial sector as the country grapples with its worst drought in over a century and soaring inflation rates. The move comes as inflation hit a three-year high, exacerbating economic challenges in the southern African nation.

The facility aims to bolster the financial system’s ability to withstand shocks caused by climate-related disasters and economic instability. Mukwandi Chibesakunda, CEO of Zambia National Commercial Bank (Zanaco), emphasized the urgency of the situation during an interview with Bloomberg‘s chief Africa correspondent, Jennifer Zabasajja, on Horizons Middle East and Africa. “The drought has severely impacted agricultural output, which is a cornerstone of our economy,” Chibesakunda stated.

Zambia’s inflation rate accelerated to 24.6% in December 2024, up from 22.4% the previous month, driven by rising food prices and supply chain disruptions. The drought has devastated crops, leaving millions at risk of food insecurity and further straining the economy. The Central Bank’s new facility is part of a broader strategy to stabilize the financial sector and support recovery efforts in 2025.

Analysts warn that the drought’s ripple effects could extend beyond agriculture, affecting industries such as energy and manufacturing. Zambia relies heavily on hydroelectric power, and reduced water levels have already led to power shortages, hampering industrial productivity. The government has called for international aid to address the crisis, with the United Nations estimating that over 2.3 million Zambians will require food assistance in the coming months.

Despite the challenges, Chibesakunda expressed cautious optimism about Zambia’s economic recovery. “We are working closely with stakeholders to implement measures that will mitigate the impact of the drought and inflation,” she said. “The Stability and Resilience Facility is a critical step in safeguarding our financial system and ensuring long-term growth.”