Impact assessment of domestic public debt on bank credit to the private sector

Abstract

Would domestic public debt financed by Moroccan banks have a negative impact on the evolution of bank credit to the private sector? This is the issue addressed in this paper. In fact, following the debt crisis experienced by the country in the 1980s and following the end of the structural adjustment program, the Moroccan State chose to modify its financing structure by reducing the recourse to external debt in favor of domestic indebtedness. In this sense, the banking sector now emerges as the main lender of the State, on the one hand, by investing in the purchase of sovereign securities issued by the Treasury, but also by granting more and more loans to public companies. This raises the question of the existence of a crowding-out effect of bank credit intended to finance private investment through public debt. This article assesses this problem by determining the short and long-term relationships between the variables “domestic public debt” and “bank credit to the private sector” following an econometric approach by ARDL modeling (Autoregressive model with staggered lags). The results of this study show that in the short term, domestic public debt in Morocco stimulates credit to the private sector, but support the existence of a significant crowding out effect in the long term. It is thus estimated that each additional dirham of domestic public debt reduces bank credit to the private sector by 1.38 dirhams.

JEL Classification : E44, H63, C32.

Paper type : Empirical research.