/ 13 November 1997

Municipalities on runaway borrowing spree

THURSDAY, 12.00NOON:

LATEST Reserve Bank figures show that borrowing from private banks by local authorities stood a shade short of R3,6-billion in September, nearly double the figure in the same month last year.

DI 900 bank supervision returns from commercial banks in September show that last year’s sharp increases in credit extended to local authorities continued unabated this year — evidence that local authorities are unable to keep within budgetary constraints. Economists have expressed concern at the high rate of new credit extension to local governments, saying that central government should intervene to prevent credit growth rising so fast.

The figures are also cause for concern as they are included in private sector credit extension growth figures used by the Reserve Bank to determine monetary policy. The increasing debt of local authorities has contributed to the high growth in new credit extended this year, in the face of signs that the economy is slowing down. Although municipal debt is a small proportion of total private sector debt of more than R406-billion, it has made a substantial difference to overall private sector credit growth figures. September’s 14,25% rise in new credit extended to the private sector would have been closer to 13,6% if new local government debt were excluded.