Cost of borrowing too high: Mugaga

PHILLIMON MHLANGA IN VICTORIA FALLS

The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga,who also serves as deputy chairman of the Standards Association of Zimbabwe (SAZ), has warned that the cost of borrowing in Zimbabwe is prohibitively high, despite a year of relative macroeconomic stabilisation.

Speaking at the Standardisation and Business Leaders’ Conference in Victoria Falls yesterday, Mugaga said credit conditions continue to weigh heavily on firms, even as authorities have tightened monetary policy to restore stability.

“The cost of borrowing is a function of a number of factors,” Mugaga said, pointing first to money supply growth as the principal driver.

“What the government needs to do at this junction is to control money supply.”

His remarks reflect a growing consensus among business leaders that while policy tightening has helped stabilise inflation and the exchange rate, structural weaknesses in the financial system continue to keep credit expensive and scarce.

Over the past year, authorities have pursued a tight monetary stance, deploying high policy rates and liquidity management tools to curb inflationary pressures, a persistent challenge in an economy still recovering from repeated currency shocks and episodes of hyperinflation.

Mugaga acknowledged that progress has been made.

“We’ve done quite a good job for the past year,” he said, citing interest rate hikes and moderation in money supply growth.

“That is very, very positive.”

However, he cautioned that the gains have come at a significant cost to productive sectors.

Lending rates remain elevated, with real borrowing costs estimated at around 12%, while policy rates have been pushed as high as 35% in an effort to discourage speculative borrowing and arbitrage activities.

“By any stretch of imagination, that is too high,” Mugaga said.

For industry, particularly manufacturing and agriculture, the implications are immediate and far-reaching. High borrowing costs constrain working capital, delay expansion plans, and erode competitiveness in a region where financing costs are significantly lower.

“Generally, the cost of funds is high. It’s way beyond what we see in the region,” he said.

Beyond inflation expectations, he argued, the problem lies in the shallow nature of Zimbabwe’s money and capital markets. Limited liquidity, coupled with administrative controls, continues to undermine efficient price discovery in the financial system.

“Without a money market, it means there’s no financial deepening,” Mugaga said.

The absence of a fully developed interbank and capital market structure forces lenders to price in additional risk premiums, pushing up lending rates further. In turn, high borrowing costs suppress demand for credit, reinforcing a cycle that constrains financial sector development and economic expansion.

The government now faces a delicate policy balancing act. Premature monetary easing risks reigniting inflationary pressures and destabilising the exchange rate. Yet maintaining tight conditions for too long could further depress investment and slow already subdued industrial growth.

“We can’t talk of cutting or reducing the cost of borrowing when the money supply is hitting the ceiling within the economy,” Mugaga said.

His comments underscore the centrality of liquidity discipline in any sustained effort to reduce interest rates, a challenge that has historically proven difficult in Zimbabwe, where fiscal pressures often spill over into monetary expansion.

The debate over financing costs formed part of wider discussions at the Victoria Falls conference, held under the theme: “Innovate, Collaborate and Transform: Shaping the Future Together for Safer, Easier and Better Lives.”

SAZ director-general Cosmus Mukoyi emphasised the importance of standards in strengthening competitiveness and resilience across the economy.

“This theme speaks directly to the challenges and opportunities confronting our economies today,” Mukoyi said.

“It underscores the urgent need for collaboration between government, industry, and standards bodies.”

He argued that standardisation is increasingly central to unlocking both regional and global markets, particularly under the African Continental Free Trade Area framework.

“Standards are enablers of trade, guardians of safety, drivers of innovation, and foundations for sustainability,” Mukoyi said. “In an era shaped by digital transformation, climate change and ESG imperatives, their role has never been more critical.”