ONE of the pillars of the Zambian government’s development focus is economic growth.
When the national economy grows, it results in the creation of employment for citizens and increased access to credit for small and medium-scale enterprises. According to the Bank of Zambia (BoZ), the country’s economic growth trajectory looks positive with gross domestic product expected to increase to 4.3 percent this year from last year’s 3.9 percent. Growth increases participation, which ultimately translates into improved quality of life for ordinary citizens. This comes as a direct result of improvements in public service delivery, increased production, reduced prices for consumer goods, including food, and increased government revenue. It is for this reason that Government has expressed frustration at the reluctance by most commercial banks to reduce interest rates despite the reduction of the national monetary policy rate and statutory reserve ratio by BoZ. Recently, Minister of Finance Felix Mutati said some commercial banks are frustrating Government’s efforts to grow the economy by refusing to lower their interest rates on lending. The minister could not have put it any better. Mr Mutati was actually echoing complaints by various sections of the Zambian society about the banks’ reluctance to respond positively to these measures. BoZ has been constantly monitoring economic fundamentals with the aim of intervening positively whenever necessary to enable commercial banks to increase their liquidity and, subsequently, their lending capacity. Last month, the Monetary Policy Committee of BoZ reduced the policy rate by 75 basis points from 11.0 to 10.25 percent, and the statutory reserve ratio by 150 basis points from 9.5 percent to 8.0 percent. In August, it reduced the policy rate from 12.5 percent to 11 percent and the statutory reserve ratio from 12.5 percent to 9.5 percent. A policy rate is a monetary policy instrument under which central banks regulate availability, cost and use of money and credit. The statutory reserve ratio is a monetary policy instrument used by the central bank to determine the rate commercial banks require to maintain liquid assets as a requisite for providing credit to customers. BoZ says a reduction in the policy rates means that there is a potential to alter short-term interest rates in an economy, thereby influencing a level of economic growth. But as Mr Mutati pointed out, lending rates have continued to be scandalously high in Zambia despite positive interventions by Government. The nation expected to see reciprocal reductions in the lending rates by commercial banks. Only few banks have announced negligible reductions in the rates. Majority of them are still dragging their feet attributing their reluctance to a plethora of factors, which only they see; the experts who constitute the Monetary Policy Committee do not see them. This is not putting the banks in positive light in the eyes of the public. Capitalistic tendencies seem to be at the core of the obstinacy. Some players in the economy are even suspecting that commercial banks may be colluding in resisting calls to reduce interest rates. We hope that the banks will heed Mr Mutati’s appeal and that of numerous other players. Borrowing in Zambia is still too expensive not only to the business community but also to individual citizens who would like to use loans to build their own houses and invest in small and medium-scale businesses. We are, however, happy with Mr Mutati’s assurance that Zambia is still on course towards becoming a middle-income country by 2030 in line with the Seventh National Development Plan. Let the banks play a positive role in this collective journey by reducing interest rates.