Exorbitant bank interest choking business growth - minister Mkulo

The government has admitted that high cost of loans due to exorbitant bank interest rates “is a chronic problem” choking business growth and promised to address it in the 2009/10 budget.

Finance and Economic Affairs minister Mustafa Mkulo said in an exclusive interview with ‘The Guardian’ that apart from the special task given to a committee headed by the Bank of Tanzania (BoT) Governor Prof Benno Ndulu to look into the matter, the government was determined to address the problem in the coming budget session.

Mkulo gave the statement in response to a question on whether or not government’s continued trend to borrow internally through issuance of Treasury Bills undermined its earlier plans to reduce selling the same to make banks lend to people.

“I’m not ready to give detailed response because if I do, I will preempt my budget speech which among other things proposes measures to address the problems of high lending rates in the country”, Mkulo said.

In the previous budget speech, the government indicated it would reduce internal borrowing by minimizing selling of Treasury Bills to commercial banks, so that the banks could use the monies to lend and in turn increase competition among them and in the process reduce lending rates.

Bank interest rates, hovering between 18 and 25 per cent have for quite sometime now been cited as one of the major stumbling blocks to business development in the country.

Recently members of the Economic and Finance Affairs’ parliamentary committee unsuccessfully advised the government to force commercial banks to reduce interest rates to make loans affordable as well as effective.

The government responded that it respected the fundamental rules of free market economy it adopted more than 17 years ago underpinning market forces in the economy and competition among players.

However, experts blame the government for the loose regulations which do not bind commercial banks to set aside a certain percentage of their total capital for provision of loans in the country.

Hilary Biduga, the Director of Inter-Line Travel and Tour Company says the International Monetary Fund (IMF) and the World Bank policies of free market economy could not permit government intervention to lower the current high lending rates.

“But through putting percentage ceiling of their capital to be dedicated by the banks to the borrowers, the current interest rates were likely to decline significantly” he said.

It’s projected that Tanzania’s economic growth could rebound in 2010 to more than 6 per cent if the world overcomes the economic downturn, the central bank governor Benno Ndulu said early this week.

Tanzania, the second largest economy in the five-nation East African Community bloc, expects growth of 5-6 per cent this year, down from 7.4 per cent last year, due to the effects of the global economic slowdown.

According to Ndulu, the country was working towards relaxation of the regulations governing movement of capital into and out of the country.
SOURCE: THE GUARDIAN