At end December 2018, the quantity of money that circulated Zambia’s economy reached a record high since 2013.  However, during Q4, 2018, it rose by 0.9% only, less than the 13% rise recorded in the third quarter.

This quantity of money (monetary mass) is the sum of the notes exchanged by people and companies as well as the deposits in bank accounts. Its increase greatly depends on the volume of net credit granted by banks to the economy and the foreign assets from exports and other transfers.

As far as Zambia is concerned, the slow growth coincides with the decrease from 9% in Q3, 2018  to 1.9% in Q4, of the volume of credits granted by banks to the economy.

Loans granted to the government excluded, it appears that loans granted by local banks to the private sector and households decreased in the last three months of 2018. “The low growth rate of the monetary mass attests of the persisting difficulties to maintain a sustained economic activity”, the monetary policy committee revealed.

These difficulties translate into the decrease of foreign assets and a depreciation of the kwacha, the local currency.

Market analysts would have expected a rate cut to boost loan granting but, the central bank seems to have preferred external stability. It kept the prime rate at 9.75% pointing out a price increase and interest rates more important than the government expected.  

Amid rising imports, more money in the economy within an external counterpart could further worsen the country’s monetary situation. This is a dilemma for the government, which wants to fund many infrastructure projects to keep its promise to populations.

Idriss Linge