Private sector credit dropped by 2.4 percentage points to 26.8 percent in August this year from 29.2 percent in July, a development analysts say is not ideal for business growth, data from the Reserve Bank of Malawi (RBM) shows.
RBM’s Monthly Economic Review for August 2024 indicates that the public sector, which consists of the central government and State-owned enterprises, continues to dominate the credit market as it added K280.2 billion to hit K5.2 trillion.
The report further shows that although the stock of private sector credit increased on a monthly basis to K1.5 trillion triggered by increases in individual household loans and foreign currency denominated loans, commercial and industry loans declined.
Reads the report in part: “On a monthly basis, the stock of private sector credit increased by K21.8 billion to K1.5 trillion by the end of the month.
“This was primarily driven by increases in individual household loans and foreign currency denominated loans amounting to K35.3 billion and K2.5 billion, respectively.”
But the report shows that commercial and industrial loans and mortgages declined by K13.9 billion and K1.5 billion in August 2024, respectively.
In terms of economic sectors, expansions were recorded in community, social and personal services at K15.2 billion, wholesale and retail trade at K6.6 billion, agriculture, forestry, fishing and hunting at K4.8 billion, financial services at K4 billion and electricity, gas, water and energy at K3 billion.
Meanwhile, the public sector continues to enjoy access to credit market as it added K280.2 billion to K5.2 trillion in August 2024, according to the report.
Among others, RBM net credit to central government rose by K168.1 billion to K2.1 trillion following an increase in the bank’s holding of Treasury notes by K147.3 billion to K1.6 trillion and a drawdown of government deposits amounting to K41.7 billion in August 2024.
Reads the report: “In contrast, the RBM’s holding of Treasury bills declined by K12.2 trillion to K4.3 trillion during the same period.”
In an interview on Sunday, finance expert Brian Kampanje said limited access to debt capital for both capital expenditure and daily operations for the private sector could thwart job creation efforts while public sector credit demand could exert pressure on interest rates.
“The interest rates on the government securities such as Treasury bills, Treasury notes and Treasury bonds will go up.
“This will push up the policy rate and raise the cost of debt. Banks might become more risk averse and this can significantly affect economic growth,” he said.
Kampanje said this is a sign of desperation by the government, which is under pressure to collect enough taxes and other income to finance public expenditures.
In a separate interview, Business Partners International Malawi country manager Bond Mtembezeka warned that the decreasing private sector credit could result in contraction of the economy.
He said: “Decreased private sector credit can limit business expansion leading to reduced economic growth; excessive government borrowing can fuel inflation reducing the purchasing power of consumers.
In an interview, investment analysts Kondwani Makwakwa attributed the rising inflation and high interest rates, which dampened the businesses interest to borrow, but warned the trend could affect economic growth if not timely checked.
“Reduced access to credit for the private sector limits business expansion, investment, and daily operations, which can slow down overall economic growth,” he said.
Makwawa said private sector credit is essential for funding capital investments and maintaining productivity.
