Private sector credit is projected to grow by 22.6 percent in fiscal year 2023-24

Thukten Zangpo

The central bank, Royal Monetary Authority (RMA), projects a 22.6 percent increase in credit to the private sector, reaching a whopping Nu 204 billion, in the fiscal year 2023-24. 

According to RMA’s recent monetary policy statement, this is up from Nu 166.4 billion in the previous year, significantly higher than the 10.6 percent growth recorded during the pandemic in fiscal year 2021-22.

The rise in credit is seen as a positive indicator of economic recovery, enabling consumers to spend more on essentials like housing, education, and vehicles, and other personal expenses. In addition, businesses will also have access to more funds for investment.

The credit to the private sector is expected to continue growing, with forecasts of 21.4 percent growth in fiscal year 2024-25 and 22.3 percent in fiscal year 2025-26.

Key sectors such as hospitality and tourism, trade and commerce, agriculture, and manufacturing are expected to experience growth from this increased credit supply.

The credit to the private sector in fiscal year 2023-24 accounted for 76.8 percent of the total money supply of Nu 244.5 billion.

The money supply is projected to grow by 19.8 percent in fiscal year 2024-25, driven by increases in both net foreign assets and net domestic assets.

The credit to the private sector, constituting 80.5 percent of the money supply, saw a significant growth of 19.3 percent from the initial projection of negative 9.2 percent for fiscal year 2022-23.

This growth was fuelled by increased lending to the education sector (Nu 13.8 billion), tourism and services sector (Nu 35.8 billion), and transport sector (Nu 7.44 billion).

However, the housing sector, which comprises 28.1 percent of outstanding loans, saw only marginal growth due to the moratorium on housing loans.

The central bank’s monetary policy statement reported healthy liquidity in the banking sector, though lower than during the pandemic.

For the fiscal year 2023-24, the average liquidity surplus as indicated by the banks’ current accounts maintained with the RMA, was estimated at Nu 9.6 billion. This is projected to increase to Nu 14.5 billion in fiscal year 2024-25.

According to the report, this projection indicates that the banking sector will have sufficient liquidity to meet the government’s financing needs for the fiscal deficit through domestic borrowings, without adversely impacting the credit supply to the private sector.