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The fate of putting the Malawi economy on track lies in establishing a solid, reliable and sustainable revenue base, Stanbic Bank (Malawi) said last week.
In its latest monthly newsletter, Stanbic said spreading the earnings base could blend well with the present government’s efforts to spend prudently.
Analysts say Malawi’s narrow income band—anchored by agriculture receipts and foreign aid puts the economy at the mercy of donors and weather conditions. Analysts are pressing for diversification.
Stanbic said government borrowing from the banking system over the last four months has fallen largely due to prudent controlled spending.
It said during the first half of the current fiscal year, net domestic credit to government dropped by K3.8 billion to K22.3 billion in December.
On the other hand, noted Stanbic, gross credit to the private sector increased by K3.4 billion to K13.9 billion over the same period.
Since 2000, heavy government domestic borrowing, which analysts say raised interest rates to more than 50 percent at one time, kicked out businesses from the lending market.
Due to shortage and high cost of capital, some businesses could not survive and either closed down or reduced production.
The increased loans to the private sector could mean that businesses are finally responding to the cheaper cost of money after the 10 percentage point cut in the bank rate last June.
The availability of capital could encourage investment to revive the manufacturing sector create more jobs, stimulate further economic activities and bring in more tax revenue to government.
Stanbic said although latest monetary and fiscal numbers do not support a rate cut soon, surprises which sometimes come with government’s determination to spur industrial growth cannot be ruled out.
“In some instances, decisions to drop the bank rate seem to be influenced by the time factor and political pressure,” said the bank.
Last week, Reserve Bank of Malawi’s Monetary Policy Committee dashed hopes of further bank reduction when it left the repo rate at 25 percent, citing inflationary pressures and government deficit as the reason.
Consumer inflation stood at 13.7 percent last December from 12.8 percent in November owing to seasonal price jumps, especially staple food maize which controls the food index.
The bank said fiscal pressures emanating from last year’s general elections remain intense and continues to threaten Malawi’s relations with donors.
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