crowdingout

When the Government Borrows First, Everyone Else Waits.

Every economy has a limited pool of bank money. When the government is the biggest borrower in that pool, it gets served first, and businesses fight over what remains. Economists call this crowding out. Research from the European Investment Bank found that African banks increased their holdings of domestic government debt from about 10% to about 17.5% of their assets between 2010 and 2023, while private sector lending slipped from about 42% to 38% over the same period.

This is not an accident. A government that offers attractive yields on its securities is effectively competing with farmers, manufacturers and traders for the same naira, cedi or shilling. Because the government is seen as the safest borrower, it usually wins that competition. Meanwhile, small businesses are left with expensive loans, short tenors, or no loan at all.

As a result, the economy grows more slowly than its potential. Fewer factories open, fewer farms expand, and fewer jobs are created, even though the banks themselves report strong profits. A healthy banking sector and a starved real economy can exist side by side, and that is exactly the puzzle many African countries face.

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Disclaimer: This post is for educational purposes only and is not financial advice. Crypto trading involves risk, including the loss of capital. Always do your own research.
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