By Daily Revelation Editor
The Bank of Zambia (BoZ) has decided to raise the statutory reserve ratio on both local and foreign currency deposits and Vostro accounts deposits by 3 percent from 11.5 to 14.5 percent.
The reserve ratio is the percentage of deposits which commercial banks are required to keep as cash according to the directives from the Bank of Zambia.
The reserve ratio is one of the main monetary policy instruments central banks like BoZ, use to regulate the supply of money in the economy. For instance when BoZ wants to increase the flow of cash in the economy, it lowers the reserve ratio and when it wants to reduce the flow of liquidity it raises the reserve ratio.
Therefore by raising the reserve ratio, BoZ is in effect trying to reduce liquidity in the economy, chiefly to help the Kwacha that has been rapidly losing value against the United States Dollar and other major convertible currencies, almost deteriorating to K23 against the Dollar.
However, while the move is intended to arrest the rapid depreciation and also control inflation which has also been rising, and it is not known whether the move will succeed especially in the short to medium term, the decision will also have other intended consequences in that it will raise the cost of borrowing, which in many ways has been sustaining the cash strapped people of this country.
The effect is that when there is flow of cash in the economy, financial institutions also follow suit in terms of reducing interest rates, however, the move from the BoZ will make the cost of borrowing money expensive.
There is only so much BoZ can do from the monetary side to aid the Kwacha as this requires serious intervention also from the fiscal side, which is controlled by the government in terms of spending and taxation. Both increased spending and increased taxation especially from corporations bring with them the added incentive of boosting spending in the economy. However, that basket too has been constrained, as apart from heavily taxing the ordinary Zambian people, there is very little the country is getting from the main foreign exchange earner, the mines, to help the government boost spending.
Then talk of boosting production also becomes problematic when the cost of producing goods is high, including the record high fuel prices and the import of inputs to produce goods too is becoming expensive in view of the weakening Kwacha for this import oriented economy.
It was expected that Zambians would begin to reap the benefits form the debt restructuring, alas things seem to be getting worse even after that, hope the fortunes will change. But things don’t look promising. It’s a very hard time to be a Zambian right now.
There simply isn’t any country anywhere that can survive and make progress without getting the optimum best from its main resource, mining in this country. Even the most sanctioned country in the world, Russia has been able to shame the United States and its western satellites by using its main resource, oil and gas, such that its economy is now projected to grow at over 3 percent against the gloom that was predicted would befall that country.
Chile is another copper producing country that has put its resource to very good use. However, in Zambia MoUs upon MoUs are signed, songs upon songs sung about some promised investment in the mining sector, however that seems to just be a permanent song as the people of this country do not get to reap the rewards of the same investment.
Millions of money are expatriated from this country on a daily basis, the same country they say is poor. And in this well-endowed country, we even have the luxury of giving back our precious mining assets to proven failures who ran the same mines that have been given back to them into the ground, when nationals could easily be mobilised so that those resources benefit Zambians, or a win-win situation sought with the investor rather than withdrawing shareholding from mines in the misguided thinking that foreigners will develop this country. Such a shame.
With this weakening Kwacha, and the increased reserve ratio, it is Zambians again and not the multinationals who will bear the brunt.
It’s such a hard time to be a Zambian!
Related
By Daily Revelation Editor
The Bank of Zambia (BoZ) has decided to raise the statutory reserve ratio on both local and foreign currency deposits and Vostro accounts deposits by 3 percent from 11.5 to 14.5 percent.
The reserve ratio is the percentage of deposits which commercial banks are required to keep as cash according to the directives from the Bank of Zambia.
The reserve ratio is one of the main monetary policy instruments central banks like BoZ, use to regulate the supply of money in the economy. For instance when BoZ wants to increase the flow of cash in the economy, it lowers the reserve ratio and when it wants to reduce the flow of liquidity it raises the reserve ratio.
Therefore by raising the reserve ratio, BoZ is in effect trying to reduce liquidity in the economy, chiefly to help the Kwacha that has been rapidly losing value against the United States Dollar and other major convertible currencies, almost deteriorating to K23 against the Dollar.
However, while the move is intended to arrest the rapid depreciation and also control inflation which has also been rising, and it is not known whether the move will succeed especially in the short to medium term, the decision will also have other intended consequences in that it will raise the cost of borrowing, which in many ways has been sustaining the cash strapped people of this country.
The effect is that when there is flow of cash in the economy, financial institutions also follow suit in terms of reducing interest rates, however, the move from the BoZ will make the cost of borrowing money expensive.
There is only so much BoZ can do from the monetary side to aid the Kwacha as this requires serious intervention also from the fiscal side, which is controlled by the government in terms of spending and taxation. Both increased spending and increased taxation especially from corporations bring with them the added incentive of boosting spending in the economy. However, that basket too has been constrained, as apart from heavily taxing the ordinary Zambian people, there is very little the country is getting from the main foreign exchange earner, the mines, to help the government boost spending.
Then talk of boosting production also becomes problematic when the cost of producing goods is high, including the record high fuel prices and the import of inputs to produce goods too is becoming expensive in view of the weakening Kwacha for this import oriented economy.
It was expected that Zambians would begin to reap the benefits form the debt restructuring, alas things seem to be getting worse even after that, hope the fortunes will change. But things don’t look promising. It’s a very hard time to be a Zambian right now.
There simply isn’t any country anywhere that can survive and make progress without getting the optimum best from its main resource, mining in this country. Even the most sanctioned country in the world, Russia has been able to shame the United States and its western satellites by using its main resource, oil and gas, such that its economy is now projected to grow at over 3 percent against the gloom that was predicted would befall that country.
Chile is another copper producing country that has put its resource to very good use. However, in Zambia MoUs upon MoUs are signed, songs upon songs sung about some promised investment in the mining sector, however that seems to just be a permanent song as the people of this country do not get to reap the rewards of the same investment.
Millions of money are expatriated from this country on a daily basis, the same country they say is poor. And in this well-endowed country, we even have the luxury of giving back our precious mining assets to proven failures who ran the same mines that have been given back to them into the ground, when nationals could easily be mobilised so that those resources benefit Zambians, or a win-win situation sought with the investor rather than withdrawing shareholding from mines in the misguided thinking that foreigners will develop this country. Such a shame.
With this weakening Kwacha, and the increased reserve ratio, it is Zambians again and not the multinationals who will bear the brunt.
It’s such a hard time to be a Zambian!
Related
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