SMME Debt Poses Risk to Financial Stability – Central Bank Warns

By Phiwa Sikhondze

The Financial Stability Report June 2023 compiled by the Central Bank of Eswatini (CBE) has revealed that small, medium, and micro enterprises (SMMEs) in Eswatini have accumulated a high level of debt that poses a risk to the financial stability of the country.

The report states that the SMME debt amounted to E28.5 billion at the end of June 2023, which was a significant increase from the previous year.

“The sector recorded a significant increase in debt levels, in comparison to the rise in earnings. This indicates that the sector is struggling to generate enough earnings to meet its interest obligations,” the report notes.

The report also noted that the SMME sector’s interest coverage ratio was –3.3 at the end of June 2023, which is a decline from 2.5 in the previous year.

According to the report, “This could lead to financial distress and potential defaults on debt payments. If a substantial number of SMMEs default on their debt, it could have a ripple effect on the financial system, impacting lenders and investors.”

The report further highlighted that the increase in debt levels relative to earnings suggests a higher credit risk for the SMME sector. “Lenders may view the sector as riskier, which could result in higher borrowing costs or limited access to credit. This could further strain the financial position of SMMEs and hinder their ability to invest and grow,” the report says.


SMMEs record higher profits in 2023, report shows

Despite having recorded high debt levels, small, medium and micro enterprises (SMMEs) in Eswatini recorded higher profits in the year 2023.

The Financial Stability Report June 2023 by the Central Bank of Eswatini (CBE) analyzed the performance and stability of the SMME sector and noted that the SMME profits increased by 55.1 percent to reach E968.2 million at the end of June 2023, from E670.5 million recorded in June 2022.

The report states that “the increase in profits was observed across all sectors except for the ‘construction,’ ‘information’ and ‘public administration and defense, education, human health, and social work’ sectors.” The report also revealed that the SMME sector contributes to the economic and social development of the country, as it provides employment, income, and poverty reduction opportunities. The report noted that the SMME sector plays a vital role in the diversification and growth of the domestic economy, as it operates in various sectors, such as agriculture, manufacturing, services and trade.

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