Wednesday, May 22, 2024

Government is behind high interest rates in Zambia-Prof Saasa


Government’s activities in the money market have been cited as the main reason why interest rates are high in Zambia despite the downwards movement in the benchmark lending rate.

Economist Oliver Saasa said that by offering attractive treasury bills government has made itself the main player in the market and thereby overcrowding the private sector.

Professor Saasa said that it was the reason why commercial banks would rather lend to the Central Bank than to the private sector whose risk of paying back loans is high.

Professor Saasa told QTV News by telephone that the implication of this overcrowding of the private sector is that the average private sector player cannot service their loan, leading to non performing loans becoming too high as is the case currently in the country.

Professor Saasa said that this explained why commercial banks have also become reluctant to lend to the private sector operators on the market other than the government.

Professor Saasa said that commercial banks need to upscale the interest rates to make sure that in an event of defaulting, they do not make losses when they lend to an average private sector operator, adding that it was therefore not an excuse for commercials banks to refuse to reduce interest rates as they have to hedge themselves against macroeconomic fundamentals.


    • The Professor should have gone on to say the government is borrowing excessively to pay for overpriced contracts, pay interest on the ever growing external debt, foreign trips to learn on corruption from Kenya, etc. The worrying thing is even with all this domestic borrowing we are still looking for $1bn from the IMF. These are red flags, if not alarm bells

    • @ Dizmo:I partially agree with you except on the IMF deal. That IMF deal is for the BOP (balance of payments) support at 0% interest (cheap) and is meant to help in paying for imports. IMF is not going to benefit anything from that loan but supporting the Zambia Govt which has liquidity problems.
      This is why HH keeps on asking why Govt borrowed Euro bonds at 10%+ interest when we could have sourced those bonds at 0% interest from IMF. The only reason why Govt borrowed Euro bonds is avoid strict IMF conditions which is why most of money from the Euro bonds was stolen through dubious contracts and today there is nothing to show for it. IMF wouldn’t let that happen because they control what you can spend their money on! The real problem in Zambia is ignorance with the largest section of…

    • Chilyata, I disagree. The main purpose of the IMF when it was set up at Bretton Woods was to provide liquidity when shocks arise in the global financial system. This is the reason most countries look to the IMF as a last resort lender before they default on their international debts like eurobonds, etc. Such defaults would cause losses to lending banks, which would default on its own debts, i.e. Contagion. IMF loans at 0% were not an option to Zambia when we got them, and you are right on the conditions it comes with.

    • @Dizmo,
      I can tell you that you know too little about economics and you are a danger to others because what you are saying is not only misleading but hog wash or I left Zambia for a job at the World Bank together with Mr Mwananshiku the former Finance Minister – so I know better. Every credible Economist/Accountant knows the history of IMF and World Bank which were set up just after World War II, to provide financial support for the economic reconstruction of member countries after the war.
      The mission or purpose of the IMF was and still is to offer liquidity support and World Bank to provide Development loans for economic reconstruction. This distinction is important because what you have written about “shocks” is NOT true – the reason is and remains economic recovery…

    • Dzimo cont’d
      the reason is and remains economic recovery after the War!! West Germany which was devastated by the war was the first country to benefit from both IMF and World Bank followed by other countries mainly from Europe. Forget about the no.nse.nse of shocks because it is NOT true – where did you get that? You are in the USA but you are still behaving like Dorah Siliya who is telling people that Turkey is in the EU which is not true!! You have access to good libraries so you need to check your facts before feeding Zambians with your fibs or pure lies for which they give you the Hi5s in ign.oran.ce!!

    • Chilyata, the purpose of the World Bank “is and remains economic recovery after the war”? The same war that ended 73 years ago? Mind you, the new purpose is, and has been for years, to end extreme poverty.
      But I can’t argue with you. Moving on.

  1. Lower interest rates do not mean the economy is doing well. In fact for a developing country the higher the interest rates the more investors will be encouraged to invest. Look at now interest rates were during MMD even reaching more than 50% but the economy was flourishing and exchange rate remained low since investors were not interested in the dollar but everyone wanted to change their dollars into kwacha since kwacha has high dividends in government sureities.

    • @Razor:
      What a stupid person you are!! Of course that cannot be true! Lower interest rate is a sign of a good and stable economy with little risk of investors losing their money. Did you study your economics at Matero Univerity or may be Cavendish University?

  2. Zambia lucks credible, fearless able people who can do what is right for the interest of its citizens. Those who can perform well are barred by the corrupt minded people. 54 years of Independence down the line we seem to be under the colonial leadership. Colonialism was far much better that time than what is happening today.

    AS LONG AS THE INSCRIPTION IN THE COURTS OF LAW ” IN THE NAME OF THE PRESIDENT” stands then we are doomed because the president is the law maker and has all the powers nor-wonder the instruments of powers are under his custodian, citizens are powerless and Judges fears to be fired by the president and that is the fact. Inshimbi, ichibumba’s leadership was more of law binding than the one we have today.

  3. @ Chilyata. Take it easy friend. Be courteous in responding to others. Take a leaf from Dizmo response to you-expressing a different viewpoint without using strong language. If you are an economist, as your post seem to imply, you appreciate that there’s not one way of understanding any economic issue.

  4. All upright countries in the worlsd appoint economists like Oliver as reserve bank governors and not bookkeepers like Mwanakatwe and Mutati. Oh, I forgot he is Lozi and the job is only reserve for Bembas and Nyanjas whose nearest comparables to an economy is Zaire and Malawi, where there are no economies.

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