Government credit from banks rises 37 percent

Government credit from commercial banks rose by K66.7 billion, about 37 percent, to K245.8 billion in April compared to the previous month while the private sectors’ shrank in the same period.

The Reserve Bank of Malawi (RBM) April 2014 Economic Review released early this month indicates total domestic credit from commercial banks in the period rose by K66.3 billion to K514.2 billion from K448 billion regardless of the prevailing high lending rates.

The RBM report further explains that the increase was due to a K66.7 billion increase in credit to government coupled with a K689.6 million rise in credit to statutory corporations.

The central bank in the review has explained that the increase in the credit was largely due to borrowing through Ways and Means advances—provision of funds to meet a government’s budgeted expenditure—and issuance of a Treasury note—a government fixed interest rate debt security.

The RBM has also explained that the government’s borrowing from the commercial banks increased by K13.8 billion following issuance of K16.1 billion Treasury Bills (T-Bills).

In November last year Malawi’s major donors froze aid due to financial mismanagement that led to the country struggling to meet its budgetary projections.

But analysts believe that heavy government domestic borrowing crowds out the private sector and increases commercial interest rates.