Zambia | Government plans to outlaw foreign currency

The Central Bank of Zambia is likely to move forward with proposed legislation to regulate the use of foreign currencies.

• Local media outlets have reported this includes a ten-year prison term and substantial fines
• We doubt the government will enforce this against visiting tourists or foreign firms repatriating their profits

The government in Zambia seems intent on implementing legislation to limit the use of foreign currencies in the coming months. The local press has in recent weeks reported that this includes arresting people using US dollars when visiting Zambia. But we doubt the authorities would enforce the legislation against tourists or foreign firms repatriating profits; the central bank is seemingly considering amending the proposal after backlash by the private sector. And the authorities also did not enforce similar legislation in 2012 against foreigners more broadly.

Timeline for the new legislation remains unclear

The authorities appear intent on limiting the use of foreign currency. The Bank of Zambia presented draft regulations on 28 June during the International Trade Fair in Ndola. According to local press reports, measures include prison terms of up to 10 years or hefty fines for those using foreign currency for local transactions. However, officials have not specified when they intend to implement this and have since also repeatedly said that rules are still being discussed, most recently on 24 July.

In our judgement, the government will probably introduce the regulations in the coming months. Private firms – including in the manufacturing sector – have in recent weeks criticised the measures, describing them as ‘punitive’. And while the authorities have since tempered the rhetoric around the legislation, they continue to suggest that, in their view, the use of dollars is limiting their ability to control high inflation. The laws would also be in line with a wider regional trend; Angola and the DRC have both enacted similar regulations over the past year.

Arrest of foreigners unlikely

We strongly doubt the government would enforce proposed measures to arrest foreigners using US dollars (or other foreign currency) in Zambia. Some reports by local media outlets have suggested this in recent weeks. However, based on our interpretation of recent statements by the authorities as well as their enforcement of similar legislation introduced in 2012, any such regulations would most likely be aimed at promoting the use of local currency (kwacha) in local transactions among the population rather than foreigners. Back in 2012, the authorities stopped short of enforcing the laws against tourists.

Exceptions for tourism sector and foreign firms probable

The government has also suggested it will try to limit the effect of such legislation on the tourism sector and foreign firms more broadly. This would be in line with the government’s pro-business attitude since it came to power in 2021. In a sign of this, the central bank deputy governor suggested on 28 June that the measures will include exemptions, such as for foreign tourists and taxes paid in foreign currency. And Bloomberg reported on 12 July the central bank said that foreign firms will still be able to repatriate profits.

Still, we anticipate the new regulations will lead to administrative and compliance burdens for foreign firms. The government introduced similar legislation in 2012. While this still allowed some firms to receive US dollar transactions from outside Zambia, these had to be approved by the central bank. A director of a tourism firm quoted by a local news outlet described these procedures as ‘very inconvenient and time-consuming’.