Bank of Zambia Chief Wants Less State Borrowing as Yields Surge

Denny Kalyalya, Zambia’s central bank governor, made a call for the government to reduce its borrowing to fund a growing deficit as yields on the country’s treasury bills climbed to a record.

“What I am concerned about is how do we work toward reducing government borrowing in the market, which is pushing up interest rates,” Kalyalya said Thursday in an interview. “Right now, the monies are going in one direction — to the government.”

Africa’s second-biggest copper producer is struggling with a deficit that will exceed 6 percent of GDP this year from a targeted 4.6 percent as a decision to back down on a new mine tax curbs revenue. Finance Minister Alexander Chikwanda will present budget amendments including spending cuts and some tax increases to parliament this month.

Yields on Zambia’s benchmark one-year treasury bills advanced to a record 24.47 percent at a Thursday auction, as demand remained subdued. The level is used by commercial lenders as a benchmark to charge their clients. Prevailing high interest rates make business difficult, Kalyalya said.

“What business can you do that can give you that return?” he said, referring to the yield on one-year treasury bills.

While government plans to cut spending on roads, schools and hospitals to improve the deficit, this could prove unpopular before general elections scheduled for next year. Still, the state should reduce borrowing to support local businesses, Kalyalya said.

“That’s the conversation we need to be having with the government,” Kalyalya said. “To see how the crowding out which is happening is managed so that other players get a breather and we can grow the economy.”

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