Tag: Bank of Zambia

NAPSA partial withdrawal

NAPSA partial withdrawal Featured

I again return to NAPSA partial withdrawal. There are fundamental issues on the NAPSA partial withdrawal:

  1. The policy has been implemented without sufficient sensitization of the beneficiaries on the implications of partial withdrawal and more importantly what they should do with the money. Moving funds from an investment account to a consumption account is not a wise decision. No training has been provided or mentorship workshops administered to school the beneficiaries on how to re-invest the funds in higher return investments. Zambia is well known for lacking a savings and entrepreneurship culture, coupled with the existing harsh economic conditions prevailing, it is likely that the benefits will be used for consumption without creating future wealth. Consequently, we risk creating destitutes at retirement.
  2. The NAPSA partial withdraw leaves us confused at a policy level as to what government is trying to achieve. In February this year, the Bank of Zambia increased the statutory reserve ratio to remove liquidity from the market in order to manage the rapid depreciation of the Kwacha and reduce the rate of inflation. We are told that NAPSA will payout K11 billion which means pumping liquidity into the market. The K11 billion liquidity being pushed into the market will more than offset the liquidity taken out by the Bank of Zambia decision. In a nutshell, one policy measure by the Bank of Zambia is being offset by NAPSA pumping additional liquidity in the market. The two policy measures undertaken contradict and cancel each other out.
  3. We are also concerned that NAPSA is being used as a cash cow by government, to participate in government securities subscription, provide loans to foreign entities to construct the Ndola-Lusaka dual carriage way and now partial pension withdrawals. How much milk can you squeeze out of this cow before it collapses?

Fred M’membe
President of Socialist Party [Zambia]

More money problems!

More money problems! Featured

The Bank of Zambia has issued an instruction to commercial banks in Zambia to reduce money circulation further by increasing the statutory reserve ratio it holds.

The statutory reserve ratios, “will be increased by 2.5 percentage points to 11.5 per cent from the current 9.0 per cent. The revised statutory ratio of 11.5 per cent will be based on the weekly return of selected assets and liabilities from next Wednesday, February 8 2023.

The decision by the Bank of Zambia to increase the bank reserve ratio means more money problems for Zambians.

In a word, the Bank of Zambia move has effectively squeezed money out of circulation which will force commercial banks to only deal or lend money to pristine clients like mines or big business.

The ordinary already poor Zambian shall suffer even more as money is squeezed out of the market and suppliers are not paid, its going to be tough for many poor Zambians.

What Zambians need is more money and not less money – more, and not less, money in circulation.

Say increases minimum balance on your savings account from K500 to K600. Which means whilst previously you could access K500 of your money if your account balance is K1,000, now you can only access K400. To put this into perspective, it means all commercial banks balances held by the Bank of Zambia, the commercial banks will have 2.5 per cent reduction on the funds they can access for onward lending to their clients. Nationally it means commercial now have less funds to lend when SMEs that are crying for access to credit.

Clearly, there’s a lot of pressure on the Bank of Zambia to keep the exchange rate low in line with the promise made by Mr Hakainde Hichilema to keep athe Kwacha appreciating.

This will mean more money because increasing the (reserve requirement) ratios reduces the volume of deposits that can be supported by a given level of reserves and, in the absence of other actions, reduces the money stock and raises the cost of credit.

Reserve requirements are one of the monetary policy tools the Bank of Zambia uses to implement monetary policy. However, an over employment of changes in reserve requirements to enact monetary policy can be very detrimental. Open market operations are a much more precise tool.

A change in the reserve requirement ratio affects bank credit and the money stock. Reserve requirements are the percentage of deposits that depository institutions must hold in reserve and not lend out.

There are several reasons why reserve requirements are not frequently changed, the most important of which is that open market operations provide a much more precise tool for implementing monetary policy.

The impact of changes in reserve requirements is difficult to estimate; each change has the potential to affect depository institutions in different ways, depending on each institution’s deposit base. Changes in reserve requirements also my lead to changes in pricing schedules for some bank services, because some bank fees and credits are set based on reserve requirements.

Fred M’membe
President of the Socialist Party