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BUSINESS LOANS INCREASE TO E17.5 BILLION

14/05/2023 15:45:00 Mhlengi Magongo

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MBABANE – Credit extended to the private sector amounted to E17.5 billion at the end of March 2023, up by 0.5 per cent from the previous month and 10.7 per cent year-on-year.

This was mentioned by the central bank of Eswatini (CBE) on their monthly statistical release. It means that more businesses are now relying on loans to continue their operations, which affects their growth. CBE said the growth in loans was driven mainly by credit to other sectors of the domestic economy. Credit to businesses, households, and non-profit institutions serving households (NPISH) receded. They said credit extended to businesses closed the review month at E8.5 billion, lower by 0.8 per cent relative to February 2023, but growing by 20.8 per cent year-on-year. The central bank mentioned that the decline in credit to businesses was recorded in the distribution and tourism construction and community, social and personal services subsectors.

partially

The decrease in credit to businesses was partially offset by increases in the following sub-sectors: mining and quarrying, real estate, manufacturing, agriculture and forestry as well as transport and communication. CBE is nearing completion of the process of launching the Kingdom of Eswatini as a sovereign borrower in the South African market. Dr Phil Mnisi, Governor of CBE, addressed this during the Governor’s Annual Monetary Policy Statement Address at the Happy Valley Hotel in Ezulwini. A sovereign borrower is a government that borrows or issues bonds to finance big capital or infrastructure developments, such as roads or railways, or to support government spending. This means that Eswatini will be able to seek capital project funding from the South African economy. This would increase the number of projects in the country, resulting in more options for procurement of works, services and goods. Mnisi said programmes worth E4 billion would be listed at the Johannesburg Stock Exchange (JSE), and their target was to conduct the first issuance during the 2023/24 financial year. However, the governor did not mention the names of the programmes to be enlisted.

enlistment

The enlistment of programmes at the JSE would be an advantage to local investors, as they would be able to trade in those JSE listed programmes. This would provide more investment opportunities for publicly traded companies at most. The governor said the CBE actively participated in the domestic market by purchasing foreign currency acquired through export proceeds from the local banks in an endeavour to build reserves and provide a buffer against the effects of net outflows. He said since this exercise started in May 2018, an equivalent of E17.4 billion has been settled as of March 31, 2023. The total volume of trades conducted over the financial year from April 2022 to March 31, 2023, amounted to E5.3 billion, with unmatured forward positions at the end of the period amounting to E240 million. “In the year ended December 2022, the external value of the Lilangeni/Rand was weaker against the US Dollar and stronger against the Pound Sterling and Euro. Following a notable recovery in 2021, the domestic unit lost ground and fell significantly by 10.7 per cent against the US dollar in 2022,” he said.

reverted

Mnisi added that in the year under review, the Rand/Lilangeni reverted to COVID-19-year levels to reach an average of E16.37 per US dollar. CBE further availed that broad money supply (M2) closed the review month at E20.1 billion, an expansion of 1.0 per cent relative to the previous month and 4.2 per cent year-on-year. The improvement in M2 was registered in narrow money supply (M1) while quasi money supply declined over the review period. M1 stood at E7.8 billion at the end of March 2023, higher by 2.6 per cent month-on-month and by 3.2 per cent year-on-year. The rise was evident in currency outside depository corporations and transferable (demand) deposits which, grew by 9.5 per cent to E756.6 million and 1.9 per cent to E7.0 billion, respectively. Quasi money supply reflected a slight decline of 0.02 per cent month-on-month but grew by 4.8 per cent year-on-year to settle at E12.3 billion at the end of March 2023. The month-on-month contraction was driven by time deposits which fell by 0.5 per cent to E10.4 billion. “A combination of global monetary policy developments, geopolitical events, particularly the ongoing Russia-Ukraine war, and negative domestic economic growth prospects in South Africa posed as the main drivers of the significant depreciation of the Rand/Dollar exchange rate,” he said.

depreciated

The Lilangeni has depreciated in pace with the Rand, according to CBE Deputy Governor Felicia Kunene. She claims that as a result, imports from markets outside the Common Monetary Area (CMA) have become more expensive, leading to local inflationary pressures. “While countries are on a monetary tightening cycle to combat inflation, it is clear that monetary policy cannot effectively address inflationary pressures on its own. “As a result, it is critical that both fiscal and monetary policies work in tandem to address persistent inflationary pressures and ensure long-term economic growth,” she said. Kunene further stated that the decision by the minister of Finance and the Government of Eswatini to save a portion of the SACU earnings equivalent to E1.5 billion under the stabilisation fund will go a long way towards ensuring that they maintain a healthy level of reserves and protect the Lilangeni peg.