Does Government Borrowing Crowd out Private Sector Credit in Pakistan

Sajjad Zaheer · Fatima Khaliq · Muhammad Rafiq

14 citations0/0 files storedJournal of Finance & Economic Research

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Fiscal Policies and Political Economy

Abstract

We investigate the impact of government borrowing from the scheduled banks on the credit to private sector in Pakistan, using monthly data from 1998:M6 to 2015:M12. We find that a one percentage point growth in the government borrowing leads to 8 basis points crowding out of the private sector credit in four months. Albeit small, there is negative impact of government borrowing on the private sector credit. The results remain unchanged even after implementation of the interest rate corridor since August 2009.

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References

2000What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?2010Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area 2000Crowding-out and crowding-in effects of the components of government expenditure 1992Why are Developing Countries Privatizing?2005Interactions Between Public and Private Investment: Evidence from Developing Countries 2002Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area 2009Lazy Banks? Government Borrowing and Private Credit in Developing Countries 2012The Transmission of Monetary Policy Through Conventional and Islamic Banks

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