Energy counts for highest loans to private sector

A composition of private sector credit compiled by the Reserve Bank of Malawi (RBM) shows growth in credit to electricity, gas and water by 101.8 percent a development economists describe as a stepping stone towards meaningful development.

According to data provided by the RBM in 2019, private sector credit grew by 21.3 percent, compared to 11.5 percent on account of the reduction in interest rates.

Kabambe: Credit is rebalancing

The distribution of the outstanding stock of private sector credit across the economic sectors shows that loans diverted from the traditional borrowers, as notable expansions were observed in energy, mining and financial services, besides energy.

RBM Governor Dalitso Kabambe said credit to private sector is now rebalancing from its high dependency to agriculture, wholesale to energy sector, mining and financial services.

“It is pleasing to see more credit other than agriculture and manufacturing, is also going to mining, energy, and financial sectors which are key sources of growth and jobs in this country. In terms of forward looking, we see 2020 as yet another good year where such trends would continue,” he said.

Traditionally, wholesale and retail trade sector made up the largest outstanding stock of private sector credit, followed by the agriculture sector, manufacturing and community, social and personal services sector.

Economists Association of Malawi (Ecama) acting president Lauryn Nyasulu in an interview described the development as positive saying the sectors with the highest growth are productive in nature compared to the past years where much of the growth was consumption based.

“Credit growth in energy is a positive development since the sector is underfunded and private sector participation is crucial to the sector’s development. Credit growth in utilities such as electricity and gas has potential to address power shortages the country has been facing,” she said.

Nyasulu however noted that although the credit growth is very high, the actual volumes remain low.

She said: “As a country we need to invest sufficiently in infrastructural services such as electricity, water, irrigation and transportation to efficiently facilitate economic growth and development.”

But the Malawi Confederation Chambers of Commerce and Industry (MCCCI) in its annual economic report while highlighting that iinterest rates have been declining indicated that commercial lending rates are still way high.  According to the chamber availability of long term finance continues to be a constraint as such the continued absence of long term finance denies the economy expansion.

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