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Tuesday, 20 May 2008

Zambia Economic Outlook 2008

OECD's assessment of Zambia's economic outlook for 2008 was released this week. Quite useful in terms of bringing together most of the facts, figures and issues we have discussed on this blog in 2008.

4 comments:

  1. I read the whole thing and copied and pasted interesting parts and commented on them but somehow I lost it.

    2 things I remember were:
    - the 13% gap between saving and lending interest rates. which is quite astonishing, more astonishing than nominal interest rates, mr K.
    - there's business loan program that resembles what Mr K has been advocating. I found it quite interesting coming from a "neo-liberal" government.

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  2. - the 13% gap between saving and lending interest rates. which is quite astonishing, more astonishing than nominal interest rates, mr K.

    This gap shows the futility of following the IMF's 'Sound Money' theory when it comes to the real economy and growth.

    What they should have done instead, is look at the business processes in key economic sectors, and said: let's see how we can improve on it, make it more efficient, let's see how we can help beginning entrepreneurs get started more efficiently, etc. And that could be done financially, by looking at the law, infrastructure, etc.

    The reason lending rates did not come down in line with single digit inflation, is that there are other constraints on the banking business - such as lack of credit history, lack of collateral from borrowers, and most likely some very cozy dealings between the banks and the politicians.

    Businessmen rap commercial bank

    Another participant Steady Sinkala, proprietor of Stechas Financial Services who labelled commercial bank managers as 'mere front-line staffs' said most managers in commercial banks did not have power to sanction the release of funds to their clients but failed to tell their clients the truth.

    For various reasons, banks haven't been oriented toward the SME sector. I don't know in which metrics that shows up, but this is part of the problem.

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  3. This gap shows the futility of following the IMF's 'Sound Money' theory when it comes to the real economy and growth.

    So now "sound money" is a bad thing too ? What do you propose instead ?

    The reason lending rates did not come down in line with single digit inflation

    they did come down though. If I remember right, the interest rates are down to 20% instead of 40% not so long ago.

    You keep implying that nominal interest rates ought to somehow be in the single digits but the inflation rate is barely in the single digits, which is great but not a mind-blowing achievement either.

    Like I said, the scary stat is the 13% difference between saving and lending interest

    What they should have done instead, is look at the business processes in key economic sectors, and said: let's see how we can improve on it, make it more efficient, let's see how we can help beginning entrepreneurs get started more efficiently, etc. And that could be done financially, by looking at the law, infrastructure, etc.

    The same report said that thanks to the lower inflation and the lower government borrowing, the amount of money lended to the private sector increased by 50%.

    I agree that there are constrains for entrepreneurs that are not depended on "sound money" but it doesn't mean that there was no "sound money" constrains.

    I really don't see why it should be either or instead of doing it all at the same time.

    For various reasons, banks haven't been oriented toward the SME sector. I don't know in which metrics that shows up, but this is part of the problem.

    When the risk is high, the riskier companies suffer first.
    It's that simple.

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  4. I dont't know what the 'sound money' concept is but i can say from my understanding of the interest rate spread in Zambia there are other factors other than the lack of collateral, credit history etc.

    A major constaint the risk premium representative of the cocktail of risk in the Zambian financial sector. Note that among these risks is the potential loss purchasing power. Now one would argue that the drop in inflation should reflect a corresponding fall in lending rates. Quite plausable at first glance, but when you consider that lending rates are foward looking we would have to conclude that inflation expections have not been sufficently tamed my the monetary authorities. Further, lending rate are sensitive to variability of inflation and not just the level. Its a fact that inflation in Zambia has not stabilized towards a certain band. Perhaps in the next five years.

    Over this period the central bank would have to work hard to consolidate its hold on the value of the Kwacha (internal and external), ensure a credit reference system is in place and address the various overheads that keep the cost of banking so high. I must add that the share on fees and charges in the banking sector's income statement must fall. A market based force such as competition can deal with this.

    ReplyDelete

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