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Tuesday, 24 June 2014

Another policy reversal

The Bank of Zambia last week increase the amount lenders can charge for credit. The cap on lending rates rises to 28 percent from 21 percent effective immediately.

The PF government introduced maximum lending limits in December 2012 in an effort to force banks to lend money at lower rates and stimulate the economy. Lower borrowing costs were a key pledge of the PF during the 2011. And they thought the easiest way was to set a cap. In exchange PF gave banks a large corporate tax cut in the 2013 budget.

I predicted in March 2014 that the GRZ measures, such as changes to overnight lending requirements, increase policy rates and higher domestic borrowing, will put a lot of pressure on the maximum lending ceiling to the extent that GRZ would be forced to revoke it ! Well it has not quite been revoked but it has been increased substantially. Which of course has the same practical effect!

What does this mean for you?

It means getting affordable credit from the banks will become even harder. Unless of course you a bank owner, in which case you are already enjoying the corporate tax cut from the 2013 budget. And some say, PF is centre left political party. Are we really sure about that?

So, for everyone it means that if you are in Zambia and your only source of income and credit is domestic you will continue to struggle. As the cost of capital goes up only foreign investors, with cheaper access to borrowing abroad, will have an even better chance than before of getting ahead in our economy.

Chola Mukanga
Economist | Consultant | Researcher
Copyright © Zambian Economist 2014


  1. Hi cho the increase in bank lending rates is clearly understandable given the high level of liquidity which culminated in a sharp depreciation of our local currency(Kwacha).If you are importing there will be an overall gain because despite an increase in borrowing costs by 7%(28%-21%) the cost of imports has drastically reduced by 19% following the exchange rate reduction from K7.4 to $1 now to K6 to $1.Zambians must take advantage of this situation by importing capital goods which will contribute to economic development.

  2. Does it also mean that the government share of the money will increase and the public closed out. It seems it will prevent domestic private investment. PI is usually better as the individual becomes liable and so makes sure he gets a return but governments have no real personal liability for failed expenditure based on government borrowing.

    It does seem strange also for the increase to take place after a bond which should have increased the amount of kwacha available and actually brought down inflation.

    But it is a case of forward to the past. Recession.


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