Money supply remains a pressing challenge that needs to be seriously addressed to kick-start Zambia’s economic growth, says Bank of Zambia (BoZ) governor Dr Denny Kalyalya.
And Dr Kalyalya says government’s challenge in meeting some of its local obligations has partly been triggered by reduced growth in credit made available in the economy.
Speaking during the central bank’s announcement of the Monetary Policy Rate (MPR) in Lusaka, Wednesday, Dr Kalyalya explained that money supply in circulation had sharply reduced on account of a decline in net foreign assets and a drawdown in commercial banks’ offshore deposits.
Among the key issues accounting for reduced money supply was a drastic reduction in Zambia’s international gross reserves that plummeted to US $1.4 billion as at end of last quarter from US $1.57 billion by the end of last year.
“Money supply has also been quite a challenge. We see that under the quarter under review, money supply contracted. But this, to some extent, is consistent with the low growth that we had in the economy. So, we need money supply to grow so that growth can be supported. As things stand, we see that it contracted after growing by 0.9 per cent in the previous quarter,” Dr Kalyalya told journalists.
“This decline was driven largely by the decline in net foreign assets and a drawdown in commercial banks’ offshore deposits. So, the drawdown into our (international gross) reserves affects what happens to money supply. So, that’s something to bear in mind. On a year-to-year basis, we see that money supply picked up to 17.6 per cent from 16.4 per cent; quarter-on-quarter, contraction.”
Money supply contracted by 3.9 per cent last quarter compared to a growth of 0.9 per cent in the fourth quarter of 2018, BoZ data shows.
He insisted that there was need to address the lack of money supply, which had stressed the local economy.
“The contraction in money supply growth is indicative of continuing challenges in sustaining strong economic activity. We need to have a healthy growth in money supply to support economic growth. But as it is now, it’s quite constrained; that’s one of the issues that we need to address,” Dr Kalyalya urged.
And in a detailed BoZ presentation availed to the media, growth in credit to government fell to 1.1 per cent in the first quarter of 2019 from 3.3 per cent in the preceding quarter.
Dr Kalyalya explained that the reduced credit growth had implications in allowing government to meet its local statutory obligations.
“Credit to government fell to 1.1 per cent from 3.3 per cent. You may say, ‘well, maybe that’s good.’ But it has implications if the government is not getting the money, it’s not paying some if its dues and that comes to bite you!” said Dr Kalyala.