Domestic investment is being held hostage to the dramatic increase in domestic borrowing relative to what is budgeted due to the cessation of budgetary support by donor agencies and bilaterals attributed to the government's failure to implement reforms particularly in the power sector and the tax structure. In other words, the increase in borrowing from the domestic market continues to account for crowding out of private sector investment.
Given that it is the LSM which requires and is more able and willing to procure loans from the banking sector this crowding out has been particularly worrisome for economists who believe that private sector as a major engine of growth is being held back by heavy reliance on domestic borrowing by the government.
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