‘High cost of capital hinders growth’

A LOCAL research firm, Akribos, says high lending costs continue to inhibit growth, with most businesses now avoiding borrowing.
The Reserve Bank of Zimbabwe set interest rates at 200 percent last year, before lowering them to 150 percent this year, to manage money supply and curb speculative borrowing.
“Despite a reduction in the bank policy rate, the cost of money remains relatively high, hindering access to working capital, and this has the potential of further lowering GDP growth,” Akribos said in its investment monthly review.
However, Akribos said most companies would find relief in domestic market operations as well as export earnings to finance operations and expand operations.

“Exporters and local businesses will likely benefit more from the new retention ratios than in the previous regime. For example, in the past when a company increased its export revenue from US$12 million to US$28 million, it would receive an incremental incentive.
“The first US$12 million would be liquidated at 40 percent (retain US$7,2 million), while the incremental US$16 million would be liquidated at 20 percent (retain US$12,8 million). In this scenario, the company would retain a total of US$20 million.
Export retentions were increased and standardised at 75 percent across all sectors, including firms listed on the Victoria Falls Stock Exchange (VFEX) while foreign currency retention on domestic sales in foreign currency was increased to 85 percent.
As for the willing-buyer willing-seller (WBWS) and the auction system, Akribos said it expects the two platforms to continue to complement each other in the re-distribution of foreign currency to the economy.
The limit for the WBWS was maintained at US$100 000 per entity. Gold coins are also expected to continue as part of open market operations (OMO).
In a recent outlook report, the International Monetary Fund (IMF) said rising central bank rates aimed at combating inflation, as well as geopolitical tensions, continue to weigh on the economies of most developing countries, including Zimbabwe.
The IMF said sub-Saharan Africa growth is projected to remain moderate at 3,8 percent in 2023 amid prolonged fallout from the Covid-19 pandemic, although with a modest upward revision since October, before picking up to 4,1 percent in 2024.
The Bretton Woods institution said risks to the outlook include debt distress, highlighting that about 15 percent of low-income countries are estimated to be in debt distress, with an additional 45 percent at high risk of debt distress and about 25 percent of emerging market economies also at high risk.
“Since October, sovereign spreads for emerging market and developing economies have modestly declined on the back of an easing in global financial conditions and dollar depreciation,” the IMF said.
“The combination of high debt levels from the pandemic, lower growth, and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs.”
The Bretton Woods institution said an escalation of the war in Ukraine remains a major source of vulnerability, particularly for Europe and lower-income countries.
The IMF said policy priorities this year include securing global disinflation, containing the re-emergence of Covid-19, ensuring financial stability, restoring debt sustainability, and supporting the vulnerable.
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