$1BN SDR ALLOCATION WILL AVOID OUT-CROWDING OF PRIVATE SECTOR – ECONOMIST
Economist Courage Martey is confident the crowding out of the private sector in accessing funds could be averted if the government opts to draw down from the US$1 billion it received from the International Monetary Fund (IMF), as part of the new Special Drawing Rights (SDRs) allocation to boost the post-COVID economic recovery of member countries.
The government’s continuous borrowing from the banking sector has weakened credit to the private sector. The latest banking sector report showed that growth in gross loans and advances remained subdued reflecting sluggish credit demand and supply conditions and the increased appetite of banks for government securities.
With the government planning on financing the budget balance largely from domestic sources, there are fears the private sector could be crowded out. But according to Mr. Martey government can go about its financing activities without depriving the private sector of much-needed credit.
“There is that risk of crowding out the private sector. That’s why I think they have in the budget stated that they’ve gotten banks to commit a certain amount of money to support SME financing. The government is thus trying to find ways of mitigating a potential crowding-out effect of a significant increase in domestic financing. So the risk of crowding out is there given the financing mix for next year.”
“But also they’ve indicated that they will be using the SDR to mitigate that risk. If they rely on the SDR that we already have then that should reduce the reliance on open market borrowing and that should also reduce the crowding-out effect,” he added.