Government debt bites financial sector

Government debt bites financial sector

MASERU – THE government’s M1 billion debt to suppliers has started biting the financial sector.
This is because companies owed by the government are struggling to repay their loans to banks. Over the past few months, banks have seen a spike in defaults and slowdown in lending, as companies struggle to remain afloat.

Some companies have started cutting jobs or falling behind on their salary payments.
That too will hit banks as employees who are laid off or are uncertain about their salaries stop prioritising loan repayments.
It doesn’t help matters that the banks have huge amounts of unsecured loans on their books. If people and companies are not repaying their loans banks, are unable to lend out money.
Starved of credit, the economy will start to shrivel.

New money in the form of foreign or domestic investment rarely flows to countries were credit is hard to come by.
The result is that Lesotho’s economy will be rocked by strong winds from all sides.
The government faces a liquidity crunch that has hit corporates that now fail to repay their loans to financial institutions which in turn struggle to lend more to companies so they either grow or at least remain in business.

The sum total of this is a struggling economy.
Finance Minister Dr Moeketsi Majoro has already warned that the government’s debt to companies has devastating impact on businesses and banks.
“If the suppliers fail to service their loans this can lead to excessive corporate debt,” Majoro said.
He was talking of something that companies and banks have been grappling with for months.

Yet even before his statement, companies were already struggling to keep up with their loan repayments.
Molefe Leqhaoe, the Lesotho Post Bank boss, says banks are already feeling the pinch as more companies fail to service their loans because they are still owed by the government. Leqhaoe pointed out that the banking sector’s performance has been weak in 2018 because of the government’s cash crisis.
“The performance is definitely not at the same level as the previous year,” Leqhaoe said.

He said people and companies are reluctant to take loans “even to invest thus leading to low investment”.
“They don’t transact the way they were transacting in the previous years,’’ Leqhaoe said.
“At the moment, I cannot really say the number, I don’t have exact statistics but looking at the prevailing condition in the economy as a whole, we are affected.’’
Standard Lesotho Bank’s spokesman, Manyathela Kheleli, said he has observed a similar trend and is worried that investors might shun Lesotho.

“Investors become reluctant to come and invest in Lesotho,’’ Kheleli said.
He said it is obvious that some investors have put projects on hold as they wait for the economic situation to improve.

Refiloe Mpobole

 

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