Govt crowds out private sector

Net credit to government rose by 70,45% to $6,27 billion in the 11 months to November last year from the comparable period in 2016, illustrating government’s reliance on the banking sector to finance its deficit, latest data has shown.


According to the January monetary policy statement delivered by the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya on Wednesday, bank lending to economic agents grew by 44,31% to $10,637 billion in the period under review from $7,554 billion in the comparable period in 2016.

Of that, credit to the private sector rose by 6,97% to $3,705 billion.

“The net increase in credit to government continues to reflect increased reliance by government on the banking sector to finance its budget deficit,” Mangudya said.

Government has been issuing securities in the form of Treasury Bills and Bonds to finance the deficit arising from low revenue, against high expenditure and also finance other critical programmes like agriculture and debt assumption for parastatals.

Banks have found the securities attractive and an investment destination more enticing than giving out loans to individuals and companies for fear of defaults under the tough economic environment. Analysts say the high net credit to government has crowded out the private sector.

The stock of Treasury Bills and Bonds was $5,2 billion at the end of last year from $3,2 billion in 2016.

“The increase of around $2 billion largely arose from securities issued for government projects which include the financing of grain producers as well as financing agriculture,” Mangudya said.

He said financing of the budget deficit under dollarisation should ideally be from foreign sources to mitigate the “domestic creation of money which is not matched by foreign exchange”.

“It is in this context that the bank will continue to ensure that the level of money supply is supportive of the desired inflation target of between 3 to 7% consistent with the Sadc macro-economic convergence target for inflation,” Mangudya said.

Zimbabwe has been incurring fiscal deficits, with expenditure outstripping the revenue raised. The deficit is projected at $672 million this year. The projected deficit for 2017 was $1,7 billion.

Treasury has said that it would undertake fiscal deficit targeting in which the budget deficit for 2018 is halved to below 4% of GDP, and subsequently capping budget deficits below 3%, in line with best practices and financing capacity of the economy.

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1 Comment

  1. Mr Sandu,
    I read your article ‘Govt crowds out private sector’. You explain concisely the immediate negative effects of excessive government spending. I rarely see such on point explanations of economics in european media. Would you consider yourself a freemarket conservative?

    I am a local politician in Sweden, so I am curious where you would place yourself politically in the context of your country.


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