A DIRECTIVE from the cabinet taskforce on inputs supply and distribution for the Agricultural Development Bank to drop stringent conditions such as collateral security on loans to farmers ca
n only work in a viable economy, analysts said last week.
Economists said the taskforce’s directive could spell doom for the beleaguered financial institution unless there is a capital injection from donors or government itself.
“Lack of binding agreements will result in serious defaults as the farmers would have nothing to lose,” one economist said.
“The level of default has been prevalent with many other government-backed loans. The Grain Marketing Board has had problems in recovering its money, the same with the Agriculture Rural Development Authority and many others. These parastatals managed to survive through constant government interventions with grants and because our economy was stable.”
The Commercial Farmers Union (CFU)’s economics department said the directive was unsustainable because in the first place there was no money to talk about.
“The much publicised $60 billion is enough to finance only 2 000 hectares of tobacco,” the CFU said.
Under normal circumstances 76 000 hectares would be put under a tobacco crop in the commercial sector alone. A hectare of tobacco requires about $30 million to grow.
Analysts said under the prevailing economic situation where government is appealing to the international community for both food assistance and seeds to cover serious deficits, it cannot afford to issue loans where repayments are not guaranteed.
They said the taskforce’s directive would put the Agricultural Development Bank under serious viability problems once the $60 billion availed by government was exhausted.
“No investor would want to put his money where there is no guarantee that it will be recovered when it’s called. He would also need to put his money where there is adequate security,” one said.