THINKTANK RAISES RED FLAG OVER TIGHT MONETARY POLICY
THE Centre for Trade Policy and Development (CTPD) has issued a red alert that the continued tighter money policies put in place by the Bank of Zambia (BoZ) are threatening private sector expansion.
The central bank on February 2, 2023 through a circular dated February 2, 2024, raised Statutory Reserve Ratio (SRR) for commercial banks by nine percentage points to 26.0 percent from the previous 17.0 percent.
This move comes in response to rising inflationary pressures.
CTPD Public Finance and Economic Policy Researcher, Elijah Mumba, however warned that this may result in a slowdown of investment and economic activities critical for sustained economic growth.
CTPD, Mr Mumba said, was concerned that these measures targeted at ensuring price stability, may inadvertently lead to a decline in productivity as difficulties to access capital by businesses becomes a reality.
“While the Bank of Zambia aims to combat inflation and shore up the Kwacha, the reduction in loanable funds from commercial banks implies a constriction in financial resources which could, otherwise, be channelled into the economyparticularly affecting the private sector,” Mr Mumba said in a statement.
He, therefore, made suggestions on how to go about the current situation such as the need to control expenditure from the fiscal side which had seen a significant increase over the past three years.
Mr Mumba explained that rationalising spending could help alleviate pressure on the budget and complement monetary efforts to stabilise the economy.
He said such coordination was vital for achieving price stability and creating a conducive environment for private sector growth.
Mr Mumba also suggested that: “to mitigate the impact of external shocks, particularly in traditional export sectors like copper, the government should focus on diversifying the export base.