By Reason Razao
Government’s decision to maintain the 200 percent interest rate on loans is likely to negatively impact the forthcoming farming season, economist Gift Mugano has said.
The ramifications of the move by the Reserve Bank of Zimbabwe (RBZ) in June to charge 200 percent interest on credit will affect farmers’ access to capital that might not otherwise be available to them given that the loans are used to secure seeds, equipment, and land needed to operate a successful farm.
Mugano said the rates by the central bank will ultimately result in numerous consequences, chief among them failure by banks to fund the upcoming agriculture season.
“The decision by the RBZ to maintain 200 percent interest rate is suicidal,” Mugano said.
“The following are possible consequences; failure by banks to fund the upcoming agriculture season, bankruptcy amongst firms and economic agents,” he said.
RBZ’s interest rates are the highest by any central bank in the world and according to Mugano, this will lead to job losses and fall in demand.
“Money supply growth will continue to be fueled by the fiscal expenditures on public procurement and the RBZ printing press when liquidating the 40 percent export retention and 20 percent domestic export retention, notwithstanding the existence of the 200 percent interest rate.
“In view of this, reduce the interest rate to 80-100 percent,” he said.
On policy options to reduce money supply, Mugano said there was a need to reduce export and domestic retention whilst minimising the role of government in agricultural financing and giving a larger role to the private sector.
“On money supply growth, possible remedies are reducing export retention to 20 percent and scrapping 20 percent domestic export retention.
“Reduce the role of government in agriculture financing and give prominence to private sector and use long term finance on infrastructure,” said the economist.