Effects of government borrowing from the domestic commercial banking system to the availability of credit to the private sector
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Date
2016
Authors
Journal Title
Journal ISSN
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Publisher
University of Dar es Salaam
Abstract
Notwithstanding the Tanzania government strive to generate revenue from both taxes and non-tax sources; it continues to experience fiscal deficits. This put the government under pressure by becoming over-reliant on aids, budget support and borrowing to finance both development and recurrent expenditure. Whereas the government prefers domestic borrowing, the government through the Bank of Tanzania issue securities and bonds to borrow from the commercial banks. The private sector also depends much on funding from commercial banks due to the nature of the capital market in the country. The banking system on the other hand prefers relatively low risk in lending to maintain their balance sheets as liquid as possible. Because of pessimistic perception of banks on risk, banks tend to shift their portfolio away from risky private loans and opt for extension of loans toward government debt-instruments despite of lower rates as compared to higher lending rates to the private sector, this is referred to as lazy banking behavior’. It is this presence of commercial banking lending to the government that is said to crowd out private investment. (Emran and Faraz, 2009), (Fayed, 2012). The statistical analysis from 1966 to 2014, confirmed presence of crowding out effect of the government borrowing from the commercial banks,moreover, commercial bank lending is not the only factor that affects the credit supply side of the private sector, other macroeconomic variables such as money supply (M2), lending interest rate have negative effect on credit to the private sector
Description
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HJ8834.K54)
Keywords
Debts, Public, Tanzania
Citation
Kilontsi, H. D. (2016) Effects of government borrowing from the domestic commercial banking system to the availability of credit to the private sector, Master dissertation, University of Dar es Salaam, Dar es Salaam.