Central banks in the African continent are facing challenges in the implementation of monetary policies due to the large informal economy.
This was revealed by the Reserve Bank of Zimbabwe (RBZ) Deputy Governor, Dr Khuphukile Mlambo at the official opening of the 14th African Finance Journal Conference in Victoria Falls.
“The implementation of the Monetary Policy requires a more formalised economy, as it is easier to identify and forecast money demand, interest rates and exchange rates. Under these circumstances, the economy is also able to respond swiftly to changes in Monetary Policy with minimum delays and costs,” Dr Mlambo said.
“However, in most African countries, the informal economy accounts for up to 70% of the gross domestic product (GDP) and such a scenario weakens the Monetary Policy effectiveness to the extent that it is not easily influenced by the traditional monetary policy tools such as interest rates and exchange rates.
“To compound the challenges of the large informal economy, most financial markets in Africa are largely thin and shallow, with limited financial instruments especially in capital market instruments. In addition, a large proportion of Africa’s populace is financially excluded. This does not only limit the scope and conduct of Monetary Policy implementation for the continent, it also makes it difficult or almost impossible to use Monetary Policy for poverty reduction on the continent,” added Dr Mlambo.
President of the Africa Growth Institute, Professor Nicholas Biekpe and Great Zimbabwe University (GZU) Acting Vice Chancellor, Dr Andrew Chindanya feel that there is a need for evidence-based research in the financial sector to come up with long lasting solutions that will enhance economic growth in african countries.
At least 80% of the adult population in Sub-Saharan Africa have no access to financial services while a third have mobile money accounts.
The 2-day conference, which was attended by economists and financial experts from local and foreign research institutions was hosted by the RBZ in conjunction with GZU and the African Capacity Building Foundation.