Last week, we began our discussion reviewing the mid-year report. Extending from where I concluded therein, today I will examine the performance under the External Sector and the Monetary Sector of the report. Under the External Sector’s section, it was recorded that a deficit of US million was attained for the first half of 2017 in the overall balance of payments or the current account, compared to a surplus of US.1 million in corresponding period for the fiscal year of 2016.
The reason cited for this unfavourable position in the current account, was that there was an increase in the value of imports for merchandise and services. But, dissecting this, it is not really because the prices for these imported products and services have increased, the real causation for this is the exchange rate for US currency is still relatively high; in fact the commercial banks selling rate is around G6 – 8 to US. Just a few years ago, the exchange rate was stable between 0 – 2 per US (recall in April, 2017 when this column started, the author did a series of articles on this – the foreign currency shortage). This, however, is now compounded by declining export earnings, overall, a fact which is a contributory factor to a gradual depletion the country’s foreign reserves.
The aforementioned assertions could be further substantiated by the fact that the marginal increase of US.6 million in merchandise exports was more than offset by the substantial increase in imports of US million, for the half-year of 2017 when compared to the corresponding period of 2016. Exports stood at US5.1 million and imports at US8.9 million as at the end of the reporting period (mid-year, 2017). Additionally, international reserves fell by US.3 million or 3.1 per cent to US8.4 million compared to US6.7 million, compared to the corresponding period in 2016 – another substantiating point.
The monetary sector experienced growth in broad money by 4.3 per cent for the first half of 2017, compared to the first half of 2016. During the reporting period for 2017, the Central Bank continued to mop up excess liquidity through the sale of Treasury bills. This points to the fact that commercial banks are well-capitalised, with a capital adequacy ratio (CAR) of 26.6 per cent as at the end of June, 2017, compared to the corresponding period in June, 2016, of 25.8 per cent. At the same time, non-performing loans increased from 11.9 per cent in June, 2016, half year period, to 13.1 per cent for the corresponding period June, 2017, with 61 per cent of this level concentrated among business enterprises. On the other hand, while net domestic credit grew by 9.1 per cent for the mid-year ended June 2017, when compared to the same period in June, 2016, this outturn was largely driven by growth in mortgage lending and the services sector. This was offset by declines in the agriculture, mining and quarrying sectors.
These indicators, as outlined above, correlates to an overall, declining performance of the economy. Though a number of factors could explain the excess liquidity in the banking system, the more pronounced and obvious reason at this time, is that there is a slow-down in lending, when lending contracts, it means either firms have curtailed their investment agendas and/or the banks in general have curtailed lending. Bearing in mind that the level of non-performing loans also have a bearing on these outcomes. In fact, the outcome of non-performing loans is two-fold – there is the macroeconomic factor and there is the bank factor (to explain this further, I shall dedicate a separate article on this topic at a later date). All of this, together are partly due to the volatility within the external environment, that is to say, the macroeconomic landscape. These indicators are not aligned to growth prospects, nor are they stimulating confidence within the economy from both investors’ perspective and consumers.
I will pause here for now and next week, I shall examine the fiscal performance together with an analysis with the country’s total debt position, within the framework of an empirical and academic standpoint.
