Business NewsFront Page

Govt continues to Stifle local firms

World Bank says Malawi Government continues to borrow heavily from commercial banks as its share of outstanding credit rising to 59 percent as at December 2021, thereby crowding out the private sector.

This is a jump from 50 percent registered during the same period last year.

The figures, contained in the June 2022 Malawi Economic Monitor report released last week, further show that in the five years to 2021, government’s share of outstanding commercial bank credit has almost doubled, rising from 26 percent as at December 2017.

In an interview on Thursday, Economics Association of Malawi executive director Frank Chikuta said heavy government borrowing from the domestic market has the potential to crowd out the private sector as well as limiting its prospects of becoming the engine of economic growth.

He said commercial banks prefer to lend to government because it is regarded as risk-free in economic discourse.

Weighing in on the same, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said commercial banks have little regard to entrepreneurs looking for project financing.

He said: “This situation indicates dire straits on the part of government providing easy market for commercial banks.

“This means that commercial banks do not care even if there are no entrepreneurs looking for project financing as they are sure that they can get business with government.”

In addition, Tchereni said this also explains why commercial banks are making huge profits than most of the private sector players, especially the manufacturing industry.

He also observed that government is borrowing for consumption which is worrisome.

In an e-mailed response, Bankers Association of Malawi chief executive officer Lyness Nkungula said government has many competing demands for financial support, but any available customer is given the chance to borrow.

She said: “At this critical time, not everyone has the appetite to borrow from the banks and therefore any available customer is given the chance to borrow.

“Of course, the impact of this is that when government borrowing becomes large and sustained, it can substantially reduce the financial capital available to private sector firms, as well as lead to trade imbalances.”

In its June 2022 Malawi Economic Monitor, the World Bank observed that the financial sector has been resilient, supported by high levels of government borrowing despite the scarcity of foreign exchange, increasing inflation and the slowdown in economic activities.

Figures show that the stock of public debt increased by December 2021 to K5.8 trillion or roughly 56 percent of gross domestic product, according to the 2022/23 budget documents on the back of the Covid-19 pandemic.

Related Articles

Back to top button