Credits to private sector decline

THE growth of credit to the private sector has slowed down to 16.2 percent in May from 19.3 percent in the previous month, the situation that analysts attribute to the tightening liquidity stance in the circulation.

According to the Bank of Tanzania (BoT) monthly economic review for June, a large slowdown in growth was particularly marked in transport and communication, building and construction, hotels and restaurants and personal activities.

For example, the annual growth of bank’s credit to major economic activities to transport and communication declined to 8.7 per cent in May from 19.1 per cent in April and 31.9 per cent in the corresponding period last year.

Similarly, the growth of credit to the private sector was lower at 19.3 percent in the year ending April 2016 compared with 23.6 percent in March. A senior lecturer at the University of Dar es Salaam, Prof Haji Semboja said government crackdown on corruption and shifting its funds from commercial banks to the BoT has impacted greatly on the liquidity level in the circulation and lenders’ capacity to issue loans.

“This is a necessary move taken by the government to instill discipline in the use of public funds to the planned expenditure. What is currently observed is the lack of cheap money in the circulation as it was before,” he said.

He however cautioned that cutting down expenditures on various services from the private sector which is the engine of the economy may in the long run cause some economic activities to stumble, thus affecting banks and their capacity to lend. He said banks deposits mobilisation depends on some economic activities particularly from the private sector, thus when they seize, also affect the other part.

“It is high time that research were done regularly on such areas that have huge impact on the economy in order to apply flexible measures which are necessary to make some economic activities vibrant.

The BoT report shows further that credit extended to trade activities and personal loans continued to account for the largest share of total outstanding credit by about 38.4 percent in the tune of 19.8 percent and 18.6 percent respectively, followed by manufacturing 10.6 percent and agriculture 7.9 percent.

Noteworthy that the share of credit to trade and manufacturing related activities increased relative to the preceding month, while that of other activities went up.

The year ended May witnessed the extended broad money supply grew by 11.9 percent, down from 12.9 percent in the year ending April 2016. The outturn was mainly caused by a slowdown in the growth of credit to the private sector and net foreign assets (NFA) of the banking system. The NFA of the banking system recorded year on year growth of 7.1 percent, significantly lower compared with 11.0 per cent in April.

This was mainly caused by net foreign assets of banks which contracted by 45 per cent following an increase in foreign borrowing and decrease in short term placements and deposits abroad.