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Credit aggregates point to economic frailty

Credit aggregates point to economic frailty

Private sector credit extension (PSCE) growth ticked higher in April, according to the Bank of Namibia’s latest Money and Banking Statistics report. PSCE growth rose to 3.1% in April from 2% in the previous month.

Growth in total credit extended to businesses improved to 2% in April from 1.2% in March. The central bank ascribes the rebound to base effects emanating from a sharp decline observed in April 2020, following the then stringent Covid 19 containment measures.

Meanwhile, growth in credit extended to households increased to 3.9% in April from 2.6% in March. The central bank says that the stronger growth reflected a rise in demand for credit by individuals in all household credit categories, but especially mortgage credit.

Overall, PSCE growth remains subdued, decreasing by N$41.4 million or 0.04% in April, resulting in a second consecutive month of negative growth. The cumulative credit outstanding stands at N$105.2 billion.

“The anaemic growth in monetary and credit aggregates in the first four months of the year is a sign that economic activity has remained weak in 2021. The latest sectoral reports from the Namibia Statistics Agency also reflect economic weakness during this period,” Eloise du Plessis,
PSG Namibia Head of Research said.

IJG analysts noted that the lack of confidence in the economy is evidenced by corporates exploiting the low rates to de-lever their balance sheets rather than using the opportunity to expand their financial positions. As a result, the contracted interest rates alone are unlikely to drive PSCE growth.

“The lacklustre PSCE statistics reflect the nation’s poor recent economic performance of late, as it reflects both lower consumption spending as well as lower investments by corporates, two vital components of GDP. With few drivers for economic growth, a recovery in credit extension is unlikely in the short term,” IJG stated.


 On a rolling 12-month basis, N$2.81 billion worth of credit was extended to the private sector. N$2.30 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while N$880.0 million was issued to corporates. The non-resident private sector decreased their borrowings by N$369.0 million. (Source: IJG Research)


 

About The Author

Donald Matthys

Donald Matthys has been part of the media fraternity since 2015. He has been working at the Namibia Economist for the past three years mainly covering business, tourism and agriculture. Donald occasionally refers to himself as a theatre maker and has staged two theatre plays so far. Follow him on twitter at @zuleitmatthys