Effect of Banks' Domestic Credit to Private Sector on Balance of Payment and Gross Savings of Sub-Saharan African Countries (2002 – 2023)
Abstract
This study presents an analysis of the effect of banks’ domestic credit to private sector on balance of payment and gross savings in four selected Sub-Saharan African countries (Nigeria, South Africa, Kenya, and Ghana). Financial institutions have the power to influence large saving opportunities and propensities. Any economy that wants to experience continuous economic development can do so if it has robust financial institutions, specifically a healthy banking sector. This study applied a Panel Ordinary Least Square (POLS) data analysis and cemented by the granger causality test using data from the World Bank spanning from 2002 to 2023. The study found that banks’ domestic credit to private sector has no significant effect on balance of payment in the four selected Sub-Saharan African countries (Nigeria, South Africa, Ghana, and Kenya), while gross savings in the four selected Sub-Saharan African countries was significantly affected by banks’ domestic credit to private sector. The study recommends that Sub-Saharan Africa governments should consider more export promotion through massive industrialization, trade policies, and incentives for businesses. Implementing prudent monetary and fiscal policies will ensure currency stability and prevents excessive external borrowing. To improve gross savings, governments in Sub- Saharan Africa should implement policies that promote financial inclusion, investment, and responsible fiscal management. Encouraging higher interest rates on savings accounts, tax incentives for savings, and pension fund reforms can motivate individuals to save more.
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