‘Eco­nomic slow­down ad­versely af­fect­ing bank­ing sec­tor’

Swazi Observer - - BUSINESS - By Ma­jaha Nkonyane

THE coun­try’s bank­ing sec­tor has al­ready started feel­ing the pinch of eco­nomic slow­down, which comes from gov­ern­ment’s fi­nanc­ing short­falls.

This is ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund (IMF) re­port based on the mis­sion visit to Swazi­land in June, 2017.

“Since 2012, credit growth to the pri­vate sec­tor has av­er­aged to11.5 per cent, but de­cel­er­ated to 7.5 per cent in 2016 as cor­po­rate lend­ing growth turned neg­a­tive.

“How­ever, credit to house­holds for mort­gages and durables re­mained buoy­ant, con­tribut­ing to in­crease house­hold in­debt­ed­ness.

“At the same time, banks’ as­set qual­ity de­te­ri­o­rated, with NPL ris­ing rapidly and ex­ceed­ing 10 per cent of to­tal loans (end-March 2017).

“As gov­ern­ment’s fi­nanc­ing needs in­creased, banks’ di­rect ex­po­sure to the pub­lic sec­tor rose and hold­ings of gov­ern­ment se­cu­ri­ties reached about 11 per cent of banks’ as­sets,” the re­port said.

This has pushed au­thor­i­ties to adopt plans to boost growth and fos­ter so­cial and eco­nomic trans­for­ma­tion, but re­sults have been mixed. In the con­text of vi­sion 2022 vi­sion, au­thor­i­ties within gov­ern­ments have in­creased pub­lic in­vest­ment, and de­ployed in­cen­tives to boost pri­vate in­vest­ment and eco­nomic di­ver­si­fi­ca­tion.

“The im­pact of th­ese ini­tia­tives has been limited, par­tic­u­larly on pri­vate in­vest­ment, em­ploy­ment and eco­nomic di­ver­si­fi­ca­tion.

Pos­i­tive side

“On the pos­i­tive side, macroe­co­nomic sta­bil­ity has been main­tained. How­ever, im­ple­men­ta­tion of re­cent staff’s ad­vice has been un­even, es­pe­cially in the fis­cal area, and new chal­lenges are ris­ing,” the re­port said.

Ac­cord­ing to the re­port the out­look is frag­ile, in ab­sence of pol­icy ac­tions; the FY17/18 fis­cal deficit is pro­jected to be large and do­mes­tic ar­rears to ac­cu­mu­late, weigh­ing heav­ily on the out­look. Real GDP is ex­pected to grow by 0.6 per cent in 2017 and turn neg­a­tive there­after as do­mes­tic ar­rears rise.

In­fla­tion is fore­seen to re­turn be­low 6 per cent by 2018 as food prices nor­malise.

With no in­crease in SACU rev­enue over the medium-term and limited bud­get fi­nanc­ing, gov­ern­ment’s liq­uid­ity prob­lems would deepen and even­tu­ally trig­ger some form of ad­just­ment.

Even if gov­ern­ment’s bud­get fi­nanc­ing were avail­able, with no pol­icy ac­tions, the medium-term out­look would be un­sus­tain­able.

“Pub­lic debt would in­crease to 58 per cent of GDP by FY19/20 and rise fur­ther over the pro­jec­tion pe­riod.

“High pub­lic ex­pen­di­ture would fuel do­mes­tic de­mand and con­trib­ute to a cur­rent ac­count deficit and ab­sent ad­di­tional ex­ter­nal fi­nanc­ing, quickly de­plet­ing in­ter­na­tional re­serves, putting at risk the cur­rency peg,” the re­port said.

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