MONETARY DEPTH AND ECONOMIC ACTIVITY AS DRIVERS OF PRIVATE CREDIT IN UGANDA
DOI:
https://doi.org/10.35631/AIJBAF.825003Keywords:
Credit Supply, Monetary Transmission; and Private Sector CreditAbstract
The main objective of this study was to examine the short run relationship between monetary depth, economic activity and annual changes in private sector bank credit in Uganda from 1994 to 2025, with particular emphasis on changes in broad money, real gross domestic product growth, inflation and lagged movements in private sector credit. To achieve this objective, annual data were obtained from the World Development Indicators and analysed using an ordinary least squares regression model with Newey West heteroscedasticity and autocorrelation consistent standard errors, while private sector credit and broad money were measured as annual changes in their respective ratios to gross domestic product. The results indicated that the model explained 81.4 per cent of the variation in annual changes in private sector credit; furthermore, changes in broad money and real gross domestic product growth had positive and statistically significant relationships with private sector credit. Although inflation had a positive relationship and the lagged change in private sector credit had a negative relationship, neither variable was statistically significant. Overall, the findings demonstrate that Uganda’s private sector credit dynamics are influenced by both banking system liquidity and prevailing economic activity; however, the less than proportional response of credit to broad money suggests that liquidity alone is insufficient to stimulate lending. The study recommends strengthening credit information systems, movable collateral registration, transparent loan pricing, financial sector competition and risk-based lending technologies, while recognising that the reported relationships represent short run associations rather than definitive causal effects.
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