Abstract:
The relevance of the private sector in the overall growth of economies in subSaharan
Africa (SSA) draws attention to the elements that aid its grov.rth.
Provision of credit is of much interest to the government and the private sector
since their in vestment acti vities mostly depend on the quantity available. As
more credit is given to one of the sectors less will be available to the other.
Therefore , defaults on the side of one sector is likely to influence activities in
the other sector as well as the operations of the tinancial institutions from
vvhich the credits are sourced. This explains the fact that there exists a
competition for the credits provided by domestic financial institutions.
Considering the contributions o/" financial institutions and the activities of the
pri vate sector in achieving overal l economic growth as a basic macroeconomic
objecti ve. the relationships between the aforementioned variables are worth
investigating. This thesis. addresses three main themes: (a) examining the
effect of government domestic debt arrears on private investment; (b)
estimating and explain ing the gap in financial stability in SSA; and (c)
determining the effect of financial stability gap on private investment. These
were achieved using the system General Methods of Moments, Impulse
Response Functions. the Stochastic Frontier Analysis and the Fixed and
Random Effect estimation techniques. The study revealed that govenunent
domestic debt arrears negatively affect private investment in SSA and the subregional
communities. The estimated gaps indicate that there are differences in
financial stability gaps among SSA countries. Further, financial stability gap
beyond a threshold o/" 109.9 percent is found to be detrimental to private
investment in SSA.
