‘Economic slowdown adversely affecting banking sector’
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.
“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.