The Sunday News
Roberta Katunga, Senior Business Reporter
ECONOMISTS have said the proposed reviewing of pricing on external loans by the Central Bank was not a practical move as money in the country is not internally generated but accessed from offshore accounts that have high premiums.
Reserve Bank of Zimbabwe Governor Dr John Mangudya in his monetary policy statement on Thursday said the existing pricing structure for external loans does not reward long term lenders such that the majority of external lenders now prefer the provision of short term loans which does not augur well with the long term capital requirements of the economy.
Dr Mangudya said to encourage long term external borrowings for productive purposes; the pricing structure for external loans had been aligned with the domestic interest rates ranging from six to 10 percent per annum.
However, economists said Dr Mangudya’s stance was only feasible theoretically, not practically. Economist Mr Kipson Gundani said banks were likely to operate at a loss considering that capital was from offshore credit.
“The money that banks lend to companies or individuals is not ours. There is limited generation of saving as a country and there isn’t any excess money to lend from the deposits available. Zimbabwe is still considered a high risk country thus our premiums from offshore accounts are always high,” said Mr Gundani.
He said if cheaper capital was accessed by the banking sector it would make sense to align the pricing structure with domestic interest rates so as to revive productive sectors and subsequently the economy.
Another economist Dr Bongani Ngwenya said the problem that the central bank should have addressed first was that of putting in place policies that motivate individuals and companies to bank.
“A lot of trading is done outside the formal economy, there is a lot of money laundering and a lot of money in circulation in the informal sector. We have to find ways of tapping into that sector and channeling it into financial streams of the economy. At the moment there is nothing to motivate individuals to put their money in banks as the money doesn’t give good returns but instead the banks will charge you thus a decrease,” Dr Ngwenya said.
He said banks were relying on offshore accounts which come on high interest rates. Dr Ngwenya said it was imperative for the Government to concentrate on the supply side of liquidity before enforcing measures that will not be sustainable.
“The bulk of the money in circulation is coming from Diaspora remittances. There is no adequate funding in the country to support this review,” he said adding that Zimbabwe does not have control over the supply side of capital.
Banks reiterated the economists’ assertions that they were getting money at interest rates of around 12 percent because of the high risk premium on Zimbabwe unlike countries like Botswana or Tanzania who get it at between seven and 7,5 percent, or Mauritius at 5,5 percent.
According to the banking sector international and regional lines of credit are few and subject to high risk premium, reflecting the perception of Zimbabwe as high risk due to the existing external debt payment arrears and debt overhang.
