Maravi

World Bank opposes proposed $200m loan

World Bank opposes proposed $200m loan
Written by Chiwoyu Sinyangwe
Tuesday, March 31, 2009 4:32:23 PM

THE World Bank has sharply opposed Bank of Zambia (BoZ)'s proposed US $200 million loan facility from the International Monetary Fund (IMF) to replenish Zambiaís foreign reserve position, describing the move as unsustainable.

And the World Bank has asked Zambia to analyse its debt situation correctly before making any decision to borrow more funds.

Commenting on recent revelations that the IMF had opened negotiations with the government to lend the country loans of about US$200 million to help boost the diminishing foreign currency reserve position, World Bank country manager Dr Kapil Kapoor described the move as very expensive and a serious threat to the country’s foreign exchange reserves.

Dr Kapoor cited Russia, which had in the last six months spent over US $250 billion with very little success to keep healthy the value of the Russian ruble since the collapse in international prices of oil ñ that country’s chief export earner.

Dr Kapoor who said BoZ’s intervention in the foreign exchange market to protect volatility reduced the country’s import cover however said Central Banks were financiers to the government and that most monetary decisions they made depended on the political pressure as well as influence from other interest groups of society.

He however said it was normal and constituted economic sense for the country to borrow money from IMF to prop up the reserve levels to enable Zambia get back to three months of import cover target which he said was normally the desired target.

“ìMy own view point is it is a very dangerous strategy to start intervening in the foreign exchange market so that you start depleting your foreign exchange reserves,î Dr Kapoor said as he acknowledged that the country had lost US $300 billion in foreign exchange reserves through BoZ market intervention since the beginning of the collapse of the copper prices in the last six months. ìThe lessons to be learnt are that if there is a fundamental imbalance between demand and supply, protecting the exchange rates, and I donít think the Central Bank [BoZ] is protecting the exchange rates but intervening to protect the volatility, but it still can be very expensive and you can quickly deplete your foreign exchange reserves.”

Recently, Bank of Zambia (BoZ) governor Dr Caleb Fundanga revealed that the country’s balance of payments position had deteriorated quite considerably and that the new funding of US$200 million would be used to increase foreign currency reserves and would be concluded by May this year.

And Dr Kapoor said in as much the government borrowing was expected to increase this year in view of the current drop in economic activities, it was important that government analysed the advantages of borrowing locally or from international markets.

He also said it was important for the country to have a good strategy in place to guide its borrowing of funds.

“It is extremely important for a country like Zambia to analye its debt situation correctly before making any decision to contract debt. So having a good strategy in place is critical,” said Dr Kapoor. “As part of that strategy, it is important to have accurate information but at the moment, there is poor information. I am no big fun of debt of but there is a place for debt in development.”

Labels: DEBT, IMF, KAPIL KAPOOR, World Bank

posted by MrK @ 3:31 PM