UNDP urges Zambian central bank to intervene in financial market

The United Nations Development program (UNDP) urged Zambia Central Bank to intervene in the financial market of the country to reduce commercial interest rates in line with the fall in the rate of inflation, Zambia Daily Mail reported Tuesday.

A UNDP expert report on the recent performance of Zambian economy said that "the levels of nominal and real commercial lending rates are far too high and regulatory measures are needed to reduce them."

It said that the commercial lending rates are out of line with the central bank interest rates and that the recent fall in inflation without a corresponding fall in real interest rates demonstrates that the current monetary strategy is counter- productive.

The report said that Zambia's inflation rate should not fall below 10 percent because anything lower than that is unsustainable and that any policy to achieve a lower inflation figure will be anti-growth.

The inflation rate of the southern African country fell to a historical how of 8.6 percent in April this year.

It said that the budget deficit of 1.6 percent of GDP and a restriction of 0.6 percent of public borrowing are too restrictive for an economy driven by goals of growth to reduce poverty.

The UNDP report controversially cites the strengthening kwacha as a threat to export diversification, saying the trend should be reversed.

The report praised the continuation of the agricultural inputs subsidies by the government, saying "all evidence indicates that the government subsidies to agricultural inputs had positive effect on the growth of output both in terms of exports, diversification and food security."

Zambia needs more policy space to enable it flexibly develop home grown policies but has been severely limited by the conditionalities associated with grants and loans from external agencies such as the International Monetary Fund and the World Bank, said the report.

Source: Xinhua