eBusiness Weekly
Martin Kadzere
Borrowing costs in Zimbabwe are becoming “increasingly” prohibitive due to prevailing liquidity crunch with local firms struggling to obtain working capital loans at current bank interest rates of between 50 and 70 percent per annum, industry players revealed in separate interviews.
People familiar with the matter confirmed to Business Weekly that in recent meetings between the industry and Ministry of Finance and Economic Development, concerns were raised over high interest rates. Some industrialists suggested that the Government could offload part of its budget surplus to banks for onward lending to companies at concessionary rates.
“The tight monetary policy to contain inflation, has created a shortage of money for productive sectors,” said one person who requested not to be named for professional reasons.
“Companies are now struggling to raise working capital. However, there is a consensus that the Government should not print money . . . the reason why it is now being suggested to tap into the fiscus surplus.”
Spokesperson for the Ministry of Finance and Economic Development, Clive Mphambela, confirmed to Business Weekly that the industry raised concerns over high lending rates, but was quick to point out that no way would the Government use fiscal surpluses to subsidise the private sector.
He said maintaining a tight monetary policy approach was consistent with the Government’s objective to stabilise the currency and prices.
“I can confirm that we had a few meetings when they indeed indicated that the interests rates are now too high,” Mphambela said.
“All these companies have huge inventory positions. They are holding on to US dollars. Now that speculation has been neutralised, they should drawdown on their inventories or sell their US dollars on the auction market. They should stop looking for cheap money. The Treasury is not going to give taxpayers money to subsidise the private sector.
“Our priority is to maintain currency stability and strict liquidity control is consistency with our objectives to maintain the stability of the currency and prices.”
Top industrialist, Charles Msipa, said most companies were now struggling to borrow working capital loans due to high lending rates.
“Liquidity is tight to access borrowings at affordable rates,” Charles Msipa, the managing director of Schweppes Zimbabwe and former president of the Confederation of Zimbabwe Industries told Business Weekly in an interview.
“However, no one wants to see the printing of money and we feel that there is need for a productive sector facility for local companies,” he added.
However, some analysts say the argument that the cost of borrowing is high ignores the important fact that the savers in the economy, including pension funds, also expect a reasonable return relative to inflation.
“Considering the current and forecast inflation trends, the real cost of borrowing remains negative and therefore expectations that borrowing costs should further come down to benefit borrowers only is a non- progressive notion,” economist Mr Brains Muchemwa said in an interview.
Financial and legal analyst Godknows Hofisi, said businesses that wish to borrow for working capital or other requirements will be negatively affected by the high interest rates unless they can pass on the high cost of money to their customers through price adjustments. However, this would be highly unlikely as there is already low demand as a result of low disposable incomes.
“The increase in lending rates could be in response to many factors such as well — meaning national policy to manage currency stability and inflation, general liquidity constraints on the market or efforts by banks to preserve value upon lending.
If lending rates are lower than inflation lenders may slow down,” said Hofisi.
The Zimbabwe dollar has remained firm on $81,3 against the US in recent successive foreign currency auctions, a development that has seen prices stabilising and both month-on-month and year-on-year inflation easing.
