Banks’ lending to the private sector are in record high to provide massive boost to businesses thanks to Central Bank’s accommodative monetary policy implemented in 2020/21 to promote economic activities.
The Central Bank Governor, Prof Florens Luoga said in a Monetary Policy Committee (MPC) meeting statement over the weekend that private sector credit growth improved significantly in July and August, reaching around 20 per cent, compared with the projection of 10.7 per cent for 2022/23.
The Central Bank’s latest monthly economic review said credit to the private sector increased at an annual rate of 22.6 per cent for the year ending July compared with 8.9 per cent in the same period last year.
The report attributes the phenomenal growth to improved business environment in the country, recovery of private sector activities from the effects of COVID-19, and supportive fiscal and monetary policy conditions.
The Central Bank implemented an accommodative monetary policy in 2021/22 to facilitate recovery of economic activities from adverse effects of COVID-19 pandemic.
Among other things implementation of the policy was aimed at boosting growth of credit to the private sector of 10.6 per cent and maintaining sufficient foreign exchange reserves to cover at least four months of projected imports
The targets were set to support the broader objectives of the governments with the projected real GDP growth of 5 per cent and inflation rate of between 3 and 5 per cent.
The Central Bank introduced a special loan amounting to 1.0tri/- to banks and other financial institutions for on-lending to private sector, reduced statutory minimum reserve requirement (SMR) for banks that extends credit to agriculture and relaxed agent banking eligibility criteria.
It set limit on interest rate paid on mobile money trust account and reduced statutory minimum reserve requirement (SMR) for banks that extends credit to agriculture and relaxed agent banking eligibility criteria.
The bank also reduced risk weight on different categories of loans in computation of regulatory capital requirement of banks to provide opportunity to banks to extend more credit to the private sector than before.
The Central Bank said the implementation of monetary policy was smooth in the first half of 2021/22 but faced challenges of adverse global effects of rising inflationary pressures, high commodity prices in the world market and resurgence of the COVID-19 variants in some trading partners.
The challenges caused by supply-demand imbalances arising from supply chain disruptions aggravated by the war in Ukraine which complicated the choice between controlling inflationary pressures and safeguarding economic recovery.
The monetary policy helped to stimulate growth in the economy which reached 5.4 per cent the first quarter of 2022, in Mainland Tanzania, in line with the projection of 4.7 percent for the entire year. The performance was mostly contributed by agriculture, construction, manufacturing, and mining.
The Zanzibar economy grew by 5.1 percent, compared with the projection of 5.4 percent for 2022, owing to improvement in activities in the hospitality industry. Therefore, there is a high likelihood of realizing the growth projections for 2022.
Inflation rose to up to 4.6 per cent in August 2022 from 3.6 percent in March 2022 in Tanzania Mainland, below the target of 5.4 percent for 2022/23. A similar trend of inflation was observed in Zanzibar, where it reached 5.4 percent from 3.5 percent, compared with the target of 5 percent.
The Central Bank will continue with gradual reduction of liquidity in September and October 2022 to reduce inflationary pressures, while safeguarding economic activities, Prof Luoga said in the statement.
“Credit growth to the private sector marked the highest growth rate in the last six years to improve liquidity in the economy, said Alpha Capital Head of Research and Analytics, Imani Muhingo.
The growth rate of financial services expanded by 10.0 percent in the first quarter from 2.7 percent attained in the corresponding last quarter.
Performance of the financial sector equities corresponds with quarter one GDP report by the National Bureau of Statistics (NBS) which shows the financial sector grew by 10 per cent, the highest growth rate since 2015.
University of Dar es Salaam’s Business School (UDBS), Dr Tobias Swai said banks managed to navigate Covid-19 headwinds successfully after going digital in offering services in a bid to protect society while keeping operations steady.
“Bank is the blood of the economy like agriculture is the backbone,” said Dr Swai adding the success was “a blessing in disguise” after banks find a niche market through digital technology during the Covid-19 pandemic.
Daily News
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