The Effects of government domestic borrowing on private sector credit in Uganda (1988-2020)

Abstract

The study analyzes the effect of government domestic borrowing on private sector credit in Uganda for the period 1988-2020 using time series data. The data was obtained from the Ministry of Finance Planning and Economic Development (MoFPED), Bank of Uganda and the World Bank’s World Development Indicators. The study employs the unit root test of Augmented Dickey Fuller (ADF) and Philips Perron (PP). The co-integration was analyzed by the bounds test. The Auto Regressive Distributed Lag (ARDL) technique was used to find the long-run and short-run co-integration relationship between the independent variables and private sector credit. The results show that government domestic debt has a positive and significant relationship with private sector credit in the long run. Inflation has a positive and significant relationship with private sector credit in the long run. These results confirm that the domestic borrowing by the government in Uganda positively affects private sector credit. This means that there is need for continuous government borrowing so as to absorb the credit in banks that isn’t absorbed by the private sector. The banks should also ensure effectives in channeling resources to the private sector so as to encourage private sector borrowing.