Zimbabwe’s decision to suspend bank lending in a desperate bid to arrest the rapid devaluation of its currency will worsen the economic crisis and expose borrowers to predatory loans, the country’s business chamber said on Monday.
“Surely, this is not an ideal measure to control the growth in broad money supply,” the Zimbabwe National Chamber of Commerce (ZNCC) said in a statement.
“This legitimises a parallel banking system with usurious interest rates and no investor would be attracted to such an economy where lending can be suspended overnight.”
President Emmerson Mnangagwa ordered banks to stop lending with immediate effect on Saturday, saying the unprecedented move was meant to stop speculation against the Zimbabwean dollar, which has been rapidly devalued on a thriving black market. L5N2WZ0LR
Before Mnangagwa’s announcement, the Zimbabwean dollar was officially quoted at 165.94 against the U.S. dollar, but had been trading at an exchange rate of between 330 and 400 to the greenback on the black market.
On Monday, the official rate moved to 275.79 Zimbabwe dollars, according to the central bank website, after the government decided to use interbank market rates instead of a rate determined during the central bank’s weekly auctions.
Zimbabwe abandoned its inflation-ravaged dollar in 2009, opting instead to use foreign currencies, mostly the U.S. dollar. Mnangagwa’s government reintroduced the local currency in 2019, to circulate alongside foreign currencies in the economy, but it has rapidly lost value again.
An official of the Bankers Association of Zimbabwe told Reuters it would comment the order to suspend lending only after a meeting with the central bank on Monday.
The Confederation of Zimbabwe Industries, which along with the ZNCC represents major businesses, said it would comment late on Monday after reviewing the new regulations.
Economic research firm Morgan & Co said the lending freeze would hurt Zimbabwe’s already fragile economy.
“Businesses rely on borrowing for short-term financing and operational needs,” it said in a note. “Lending is required to import raw materials, pay salaries, working capital requirements and machinery. This measure will negatively impact on productivity and capacity utilisation.”