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| Government still borrowing heavily |
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by
Ephraim Munthali, 17 May 2005
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12:20:38
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Government continues to be the banking sector’s major client despite talks that Treasury has significantly reduced its presence on the money market.
Government’s active participation on the money market at a time when inflation targets are already off the mark has already dashed hopes of lower interest rates as pressure on the domestic debt keeps piling.
During the month of March, lending by the banking system rose 8.0 percent to about K42 billion against a 10.2 percent rise in February with government being the major consumer of the resources.
Reserve Bank of Malawi’s Monetary Policy Committee (MPC) said in its minutes published on Monday government borrowed K29.3 billion in March, representing a 15.1 percent increase compared to a 15.7 percent expansion in February.
But credit to the private sector slumped 5.3 percent to K13.2 billion as most major companies repaid their outstanding loans to banks, said the Committee.
It said parastatal organisations cut their borrowing from the banking sector and instead boosted their savings to improve their surplus position from K637 million in February to about K664 million in March.
But businesses could be playing a wait and see game as upward forces on interest rates exerted by inflationary pressures, remain real and out look for other macroeconomic variables like exchange rates still uncertain.
Year-on-year inflation stood at 14.9 percent in March from 14.2 percent in February mainly due to food inflation which advanced 17 percent from 15.5 percent in the previous month.
The Committee said it expects food inflation to slow down following harvesting and importation of maize in the year.
But the MPC said impact of food availability could be offset by an acceleration in non food inflation due to kwacha depreciation, high monetary growth and rising global oil prices.
Money supply grew 1.8 percent month-on-month to K44.6 billion in March against a 1.4 percent rise in February. On annual basis, however, liquidity expanded at a slower rate of 24.5 percent against 26.2 percent.
“The outcome in March was largely influenced by an increase in net foreign assets of the banking system. During the period, net domestic assets of the banking system also rose albeit marginally,” said the MPC.
In terms of demand, said the MPC, money supply growth arose from quasi-money following a rise in foreign currency denominated account balances due to export proceeds, particularly from tobacco pre-financing.
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