Friday, November 28, 2008

Global financial crisis to affect Zambia

COMMENT - "Macroeconomic fallout"? This is what happens when you put BANKERS in charge of your economy.

Global financial crisis to affect Zambia
Written by Fridah Zinyama
Friday, November 28, 2008 10:35:10 AM

ZAMBIA’S economy will be impacted by the macroeconomic fall-out of the global financial crisis as already manifested in copper price declines, an assessment team of the IMF and World Bank has stated.

And the IMF and World Bank have indicated that Zambia has made impressive efforts in developing its financial sector since the Financial Sector Development Plan was approved by cabinet in June 2004.

According to a joint press statement released by the two international financial institutions on Wednesday after an assessment of Zambia’s financial sector, the drop in copper prices, Zambia’s main export product, could put pressure on the country’s economy.

They further stated that the ongoing global financial turmoil could affect financial system stability through continuing pressure to unwind foreign portfolio investments and the parent-subsidiary relationships of international banks.

The team suggested that the high cost of labour and labour market inefficiencies could address the high cost of banking services. The team also noted the need for encouraging more competition in the banking sector and improving the credit information framework and the insolvency and creditor rights system in order to reduce credit risk.

And the IMF and World Bank stated that the Zambian banking sector was currently well-capitalised, liquid and profitable, noting that lending to the private sector had been rising at a fast pace while asset quality had improved considerably.

They noted that these improvements and the significant growth potential of the Zambian banking sector have prompted foreign banks to enter the market.

“Efforts to overcome the constraints to financial deepening and inclusion have also resulted in notable gains,” they stated. “Liquidity is adequate for the banking system as a whole, although a few banks may experience liquidity pressures,” they noted.

And International Monetary Fund (IMF) resident representative Birgir Arnson added that stress tests conducted by the assessment team showed that the Zambian financial system was robust and could withstand considerable capital shocks given the high capitalisation levels.

And World Bank country manager Kapil Kapoor said Zambia still had low levels of financial inclusion.

“Deposit services and transaction accounts are scarce and the high cost of finance is an impediment to future credit growth,” stated Dr Kapoor.



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