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Weak private sector credit worries experts

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Frank Chikuta

The Central Government continues to dominate the debt market evidenced by a further shrink in supply of credit from the bank system to the private sector; a situation experts say has a negative economic impact.

This comes at a time credit to the private sector was seen narrowing during the greater part of last year.

In its November 2021 Monthly Economic Review report issued Monday, the Reserve Bank of Malawi (RBM) says annual growth of private sector credit decelerated to 15.3 percent in the month under review from 21.3 percent in October 2021.

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The private sector credit contracted by K10 billion to K807.7 billion in the month under review, representing 1.2 percent in contrast to an expansion of K11.8 billion (1.5 percent) in the previous month.

This followed net repayments of K24.7 billion and K94.0 million in the commercial and industrial loans and mortgages, respectively.

However, foreign currency loans and individual and household loans increased by K9.5 billion and K5.3 billion, respectively, partially offsetting the expansionary effect in the preceding loan categories.

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The net repayment in commercial and industrial loans reflected the seasonal slowdown in economic activity during the lean period.

Economic think-thank, the Economics Association of Malawi (Ecama) says continued dominance by the Treasury on the debt market could crowd out potential private sector investors.

Reacting in an interview Monday, Ecama Executive Director Frank Chikuta said credit growth to households only leads to increased consumption.

“However, increased demand without corresponding increase in supply is worrisome as it invariably leads to a rise in inflation. In the case of the Malawian economy, external sector challenges may also arise as excess demand is satisfied by increased imports,” Chikuta said.

In a separate interview, Centre for Research and Consultancy Director Milward Tobias said, in between the two months, economic activity might have slowed down due to factors beyond a shrink in private sector flows.

Local economist Sane Zuka said the decrease in credit to the private sector in Malawi exposes bottlenecks faced by private sector players in their quest to access credit.

“Currently the private sector is still impacted and restructuring investment in line with the impact of the Covid pandemic. This situation is, however, a temporary situation and credit to the private sector will soon pick up.

“The increase of individual loans on the other hand reflects increased demand for investment capital from households, which is largely channeled into the construction sector,” Zuka said.

“This is good for the country as investment loans to households helped create a lot of employment for various groups of artisans. While the focus on job creation in the country is on formal employment, for years to come more jobs in the country will be created by the informal sector. Unfortunately, these data are not tracked.”

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