The Influence of government domestic borrowing on private sector credit growth in Uganda; The mediating role of financial market development

Abstract

The study examines the mediating role of financial market development on the effect of government domestic borrowing on private sector credit growth in Uganda. The study was premised on three objectives; 1) To examine the effect of government domestic borrowing on financial markets development in Uganda; 2) To examine the effect of financial markets development on private sector credit growth in Uganda and 3) To examine the role of financial markets development in mediating the effect of government domestic borrowing on private sector credit growth in Uganda. To achieve these objectives, the study used a quantitative research approach. This involved collecting numerical data from the Bank of Uganda website, organizing it using Ms Excel, and analyzing it using Eviews 10 software. The research findings supported the study hypotheses. It was revealed that; 1) government domestic borrowing had a significant impact on financial markets development [b = -0.842, p-value = 0.000], financial markets development had a significant and positive effect on private sector growth [b = 0.0462, p=0.005] and financial markets development partially mediates the relationship between government domestic borrowing and private sector credit growth in Uganda [b = -0.0807, p=0.0178]. Resultantly, the study recommends that the government and other monetary policy makers [Bank of Uganda and Ministry of Finance and Economic Development] reduce the level of domestic debt to promote the development of the entire financial market, enhance the infrastructure and regulatory framework for financial markets to enable them to operate more efficiently while also mitigating risks and implementing policies aimed at reducing the government's domestic borrowing