Private sector credit rises

Ngoni Chanakra

THE total credit availed to the private sector by banks and other financial institutions has risen significantly from $22 billion in 1995 to $649,4 billion by April this year.


In its Weekly Economic Highlights for the period ending August 15, the Reserve Bank of Zimbabwe (RBZ) said the private sector played a pivotal role in the country’s economic growth, employment and foreign exchange generation.


Private sector credit is composed of various instruments, ranging from short-term cash advances, bills of exchange, medium-term loans and advances, to long-term instruments such as mortgage and hire purchase loans.


The RBZ said credit in the form of loans and advances, including mortgages, now accounts for more than 70% of total banking system lending to the private sector.


“Innovation and deepening of the financial sector, over the years, has given impetus to the use of bills of exchange, as well as other forms of short-term credit,” the RBZ said.


It said banking system financial support to the private sector was therefore crucial for enabling the country’s investors to maximise their contribution towards wealth creation in the economy.


“Total credit availed to the private sector by banks and other financial institutions has risen significantly from $22 billion in 1995 to $649,4 billion by April 2003,” the RBZ said.


The central bank said rising inflation, particularly over the last five years had, however, significantly eroded the value of credit to the private sector.

Inflation stands at 399,5% but analysts predict the figure will continue soaring and could reach the 1 000% mark by year-end.


The RBZ said annual growth in real credit to the private sector had fallen from 45,2% in 1995, to 2,9% in April.


“The decline in real credit has been mirrored in a significant fall in investment, resulting in reduced output,” the RBZ said. “Reflecting this, the capacity of the economy to produce goods and services is estimated to have shrunk by more than 30% over the last four years.”


The bank-said reduction in inflation, which restored the real value of credit to the private sector, was, therefore, critical to economic growth and recovery efforts.


“There is need to ensure that funds provided to the productive and export sectors, through the existing targeted facilities, are channeled towards the most productive use,” the bank said.


“The contribution of the private sector to economic growth and development can also be enhanced by addressing current constraints to production, such as shortage of foreign exchange and industrial inputs, inadequate supply of fuel and electricity, as well as other structural rigidities in the economy.”