Wednesday, December 17, 2008

Swaziland has slowest economic growth in CMA

16 December, 2008 - By Teetee Zwane

EVEN though Swaziland has been relatively insulated from the direct effects of the sub-prime crisis, the country's economic growth has been found to be the slowest in its common monetary area (CMA).

EVEN though Swaziland has been relatively insulated from the direct effects of the sub-prime crisis, the country's economic growth has been found to be the slowest in its common monetary area (CMA).

Central Bank of Swaziland (CBS) Deputy Governor Sibongile Mdluli said while the country had been relatively insulated from the direct effects of the financial crisis, it was plausible that due to the slower growth of the world economy, the country could be growing at a slower pace than under normal circumstances.

Following this and under determining factors, the CBS has announced a cut in interest rates, reducing the discount rate by 50 basis points from 11.5% to 11% effective as of yesterday.

"The Bank considered recent developments in the domestic economy and the risks to the inflation outlook against the backdrop of conditions prevailing in the global economy and international financial markets," said the deputy governor.

She said the CBS was also concerned with the effect of past interest rate hikes on overall growth in terms of making credit expensive through increased borrowing costs.
Mdluli said of particular concern was the notable slowdown in credit extended to the business sector over the last few months, especially as this component of credit extension typically finances productive activity.

She noted that 12-month growth in credit to the private sector decelerated from 12.5% in August to 9.5% in October while growth in credit to the business sector fell from 10.4% in August to 5.5% in October.

Growth in credit to households, stated the deputy governor, also recorded a decline from 14.7% to 11.6% over the same period while year-on-year growth in mortgage advances - representing the major component of credit extended to individuals - decelerated to 19% compared to 34.4% in August.

In contrast, however, growth in motor vehicle finance increased over the same period from 16.3% in August to 22.2% in September, with a slight decline to 20% in October.
Mdluli noted that even though depreciation of the external value of the lilangeni presented a new risk to the inflation outlook, the considerable reduction in international oil prices assisted in containing inflation pressures.

Adding, she noted that since the last review of the monetary policy in October, the exchange rate had displayed some volatility, posing a significant upside risk to the inflation outlook.

"The global landscape has deteriorated as developments remain engulfed by a high degree of uncertainty largely stemming from the intensification and broadening of the financial market turmoil," noted Mdluli.

"The world economy remains exposed to the adverse effects as tensions increasingly spill over from the financial sector to the real economy and from advanced economies to emerging market economies."

The deputy governor added that even though the Central Bank had noted improvements in the country's inflation outlook since its last meeting in October, risks still remained and the Bank would continue to monitor these closely.

Meanwhile, following weeks of speculation by financial analysts, the South African Reserve Bank also announced a cut in its interest rates on Thursday, reducing the discount rate by 50 basis points from 12% to 11.5%.