Credit slow down does not reflect economic uncertainly- Shiimi …as businesses lose appetite to borrow

Central Bank governor, Iipumbu Shiimi, has disputed that the slow-down in the uptake of private sector credit extension by businesses is reflective of a lingering uncertainty on their party over the economic outlook.

Growth in total credit extended to businesses is on a downward trend, and moderated from 2.4 percent at the end of September 2017 to 2.2 percent at the end of October 2017.

This comes in the wake of the governor having pleaded with businesses to be the main off-takers of credit as the economy is in bad need of business activity to expand.

“I have expressed concern in my statement and I encouraged the business sector to borrow so that they can help to support economic activities. Yes, we are concerned that businesses are not taking advantage of this situation.  But it doesn’t mean that there is uncertainty in the economy. We still see some businesses expanding their activities, we still see some private sector businesses constructing offices,” said the governor. 

He said the slow-down in credit may also mean that some of these investments are actually financed by their own savings.

“It’s not always about borrowing. When there is no borrowing on the business side, it means that there are no activities. In fact, a healthy way of supporting your investment is to use your own savings during good times, you accumulate savings, you make profit and you put some of it aside so that you can redeploy this profit and that’s what we are seeing,” he said.

Coming from an era where there was aggressing borrowing both from the businesses as well as from the households, the governor objects the notion that there has not been growth in credit.

“It is there. It’s just not the 12 or 15 percent that we have seen before. So credit is still growing in the region of 5 percent. That’s what we need to understand. If you compare the money that has been lent to the private sector in January to where we are now, there is an increase. It’s just that the speed of growth has actually come down,” he said. 

Shiimi continues to encourage businesses to capitalise on the opportunity provided by the sluggish economy and take credit.

“There must be a combination of their borrowings and own savings so that they can invest and support economic activities.  Our message is the same, borrow responsibly and invest,” he said.