Private sector lending drops

BoT HQ in Dar
Tanzania might not attain the desired economic growth because of slowed-down credit to the private sector which in turn reduces producers' output.

The Bank of Tanzania (BoT) announced a sharp year-to-year decline of lending to private sector to 16.8 per cent in August, this year, from 27.5 per cent of the same month last year.  

The credit slowed down by almost 3.0 percentage points to 16.8 per cent in comparison to the situation that prevailed between July and August, this year.

Economists have it that the slowing down of credit to the private sector, which is the engine of growth, is bad for the economic performance and may retard the projected GDP. 

"… A number of economic activities recorded slow growth rates in credit in the year ending August 2012, except for transport and communication, agriculture, manufacturing, and personal activities," BoT indicates in September's month economic review.

The University of Dar es Salaam Senior Lecturer (Economics), Dr Jehovanness Aikael, said the slowing down would affect the ability of financial sector to facilitate production growth and hinder GDP growth.

"The trend is not healthy especially if we believe that the private sector is the engine of growth," Dr Aikael told the 'Daily News', adding, "the sector needs capital (through lending) to facilitate output growth."

He said should the private sector lending decrease while credit to government increases this means there is a crowding out of investment, a phenomenon that contracted GDP growth.

"As the economy grows, financial sector facilitation to output also increases." Dr Aikael said the current trend shows "lessening in lending activities that means reduction of financial sector facilitation to the production process".

According to BoT, during the period under review, net claims on government increased by 48.2bn/- compared with 603.5bn/- recorded in the year ending August last year. 

Two sectors namely transport and communications and, manufacturing registered high credit growth from negative to 15.8 per cent and 23.8 per cent respectively.

While others, construction, agriculture, hospitality, trade and personal loans decreased substantially in year-to-year comparison.While the credit to private sector dwindles, lending interest rates increased slightly ranging between 15.55 per cent and 16.23 per cent in August compared to 14.46 per cent to 15.88 per cent recorded in the preceding month.

"Overall lending rate recorded an increase of 15 basis points to 15.83 per cent in August (2012), while short-term lending rate, up to one year, increased by 9 basis points to 14.55 per cent," BoT said in the review.
Source: The Daily News,http://www.dailynews.co.tz,reported by Abduel Elinaza in Dar es Salaam
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