THE current monetary policy rate has not only negatively affected the commercial banking sector but has also impacted negatively on individual customers who were now finding it difficult to either access credit or service existing loan portfolios, financial expert Bernard Chisanga has observed.
“In the case of the broader economy, the high cost of credit (interest rates) has seriously constrained the capacity of the productive sector,” he said.
Mr Chisanga explained that most of Zambia’s key export manufacturing activities contained large components of imported capital and intermediate inputs which required foreign exchange for their importation.
He said limiting access to domestic credit which was required to mobilise foreign exchange to import capital and intermediate inputs was, therefore, self-defeating.
“On the part of commercial banks and other lending institutions, the increase in the MPR has constrained their ability to extend credit to potential borrowers which, in the end, has negatively impacted their balance sheets.
“This is because credit extension to borrowers is one of the major revenue centres for commercial banks,” he said.
Mr Chisanga observed that it was time for Government to strategically institute measures to facilitate access to loanable funds by targeted economic sectors; especially those engaged in export-related economic activities.
Mr Chisanga also said adjustment of the MPR was a purely monetarist panacea to currency fluctuations which was founded on the classical demand and supply dynamic.
He said tightening the Kwacha supply on the open market as a way of fighting inflation and strengthening its exchange rate value against internationally-tradable currencies.
Measures to facilitate access to loanable funds by targeted economic sectors while Government maintains its monetary policy rate at 15.5 percent will ease pressure on commercial banks, sectors expert Bernard Chisanga has observed.
Meanwhile, Mr Chisanga agreed with concerns raised by the Bankers Association of Zambia chief executive officer Leonard Mwanza that the current MPR had veritable potential to increase the volume of non-performing loan portfolios in sector.
Mr Chisanga said Mr Mwanza was right by observing that the MPR would create a distress in the sector and economy because there would be less financial activities.
“In a normal economy, this reasoning will hold. The Zambian economy is, however, not normal as it is structurally-imbalanced and not resilient enough to effectively respond to external shocks.
“What should be realised is that the challenges that Zambia is facing with respect to double-digit inflation and the weakening Kwacha cannot be cured by tightening money supply as the root cause lies in the structural configuration of its economy which is predominantly dependent on the export of one commodity,” he said.
“Mr Mwanza specifically, noted that the new rate has veritable potential to increase the volume of non-performing loan portfolios and to “…create a distress in the sector and economy because there would be less financial activities. Well, Mr. Mwanza could say this 600 times and he would still be right” he said.