Rise in US Federal Reserve rates to harm emerging economies – BAZ

THE rise in the US Federal Reserve interest rates will adversely affect emerging economies like Zambia because they will have fewer options for attracting international investors, says Bankers Association of Zambia (BAZ) chief executive officer Leonard Mwanza.

Mr Mwanza said in an interview that the potential of Fed interest rates rising in the US would entice the international fund managements to withdraw their money from emerging economies and invest where interest rate were high.

“The potential rise in interest rates in the US have remained low for the past 10 years so bonds and securities issued by the US government attract less interest from international fund managements.

“Now that they are going to increase their interest rates that means the fund manager on the international market will want to invest their money in the US securities market, so they are bound to withdraw their money from emerging economies like Zambia,” he said.

He explained that there would be less capital flows to invest in local Government securities and other areas which meant less flows for foreign currencies reaching the market once the international fund managers withdrew their investment from Zambia.

Mr Mwanza said borrowing interest rates from the international market for Zambia would be much higher than they currently were.

“Emerging economies will not become an option for investors to put their money and again if Zambia wants to borrow on the international market, they will borrow at a very high cost than it is now.

He said it would be a tougher time for Zambia because it would not be preferable for investment due to low interest rates.

Mr Mwanza said to counter the problem it was important to intensify efforts of diversifying the economy which would lead to more foreign exchange on the market and attract investment.

“Expect tougher times. Zambia will not become a preferable option investment destination  because interest rates will be much higher, so there will be a lot of turbulences not only for Zambia but also for other emerging economies.

“This is why it is important that we push our efforts into diversifying the economy,” he said.

The World Bank projected that the US was likely to raise its Federal Reserve security interest rates next year.