Assessing the Impacts of Exchange Rate Volatility on Donor-Funded Projects: The Case of iDE Zambia

Abstract

Exchange-rate volatility remains a critical constraint on donor-funded development programmes in low- and middle-income countries, yet its transmission mechanisms across programme and beneficiary levels remain insufficiently understood. This study examines the effects of exchange-rate volatility on financial performance, operational efficiency, and social outcomes of donor-funded programmes in Zambia, using iDE Zambia as a case study over the period 2015–2025. A mixed-methods approach was employed, integrating econometric trend analysis, regression modelling, and descriptive statistics with qualitative insights from surveys (n = 157), key informant interviews, and document review. The analysis is grounded in Exchange Rate Pass-Through (ERPT) theory and Contingency Theory to explain how macroeconomic shocks influence organisational performance and development outcomes. Findings reveal that the Zambian Kwacha depreciated by over 300% against the US dollar during the study period, with notable volatility spikes in 2016 and 2020. Regression results indicate statistically significant effects of exchange-rate volatility on financial disruption (β = 0.68, p < 0.001), operational inefficiency (β = 0.59, p < 0.001), and adverse social outcomes (β = 0.63, p < 0.001). At the programme level, volatility contributed to budget erosion, procurement cost escalation, and implementation delays. At the beneficiary level, it reduced access to inputs, lowered productivity, and weakened household incomes. The study concludes that exchange-rate volatility operates as a multi-level development constraint, transmitting macroeconomic shocks through programme systems to household welfare. It highlights the inadequacy of reactive mitigation approaches and emphasises the need for adaptive financing frameworks, proactive risk management, and enhanced institutional resilience in donor programming.