Businesses anticipate tight credit access
Companies anticipate tight credit access during the last three months of 2022 following the rising interest rates by the Bank of Botswana in a bid to curb high inflation.
According to Bank of Botswana Business Expectations Survey ( BES) report for September 2022, firms in the domestic and export- oriented markets perceived access to credit to be tight in the third quarter of 2022 in response to monetary policy tightening by Bank of Botswana. The Survey report indicated that domestic market - oriented firms mainly prefer to borrow from the domestic market compared to other markets, perhaps due to accessibility considerations. “Meanwhile, export- oriented firms expect a reduction in borrowing volumes across all markets mainly due to perceived tight access to credit in the third quarter of 2022.” The Monetary Policy Committee ( MPC) of the Bank of Botswana recently decided to maintain the interest rate at 2.65 percent.
BES report also reveals that approximately 44 percent of the surveyed firms indicated that their choice of where to borrow was predicated on accessibility, while 34 percent cited availability of suitable loan products. Meanwhile, 18 percent of the firms indicated that their borrowing decisions were influenced by affordability of appropriate
credit facilities, while four percent of the surveyed firms cited a combination of availability and affordability of the required loan products. As in the previous survey, most firms prefer to finance their business operations mainly from retained earnings, followed by loans, then equity and, lastly, a combination of financing. Retained earnings as a source of financing was prevalent amongst manufacturing, retail and accommodation and transport and communications as well as construction and real estate. Meanwhile, most of the firms in the Finance and Professional and Administrative sector preferred loans as a funding source.
Firms also expect the lending rates and the volume of borrowing from all markets ( domestic, South African and elsewhere) to increase in the twelve- month period to September 2023. Notwithstanding, the expected increase in lending rates, the borrowing volumes are anticipated to increase, consistent with the expected rise in investment, in line with the expected improvement in domestic economic performance during the period.
The International Monetary Fund ( IMF) recently pointed out that the necessary sustained focus by central banks on price stability through increasing interest rates, and possibly tightening too- fast, could lead to a moderation of global aggregate demand ( that is, reducing demand, investment and consumption), posing a threat to economic growth and recovery, hence the need for a delicate balance. “For emerging market and developing economies, the increase in interest rates by the major economies and uncertain economic prospects also threatened heightened exchange rate volatility and associated capital outflows.”