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The “crowding out” effect of sovereign debt

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  • Odongo Kodongo

    (University of the Witwatersrand)

Abstract

Banks mobilize savings from savers and allocate them to economic agents appropriating deficits. The allocation creates assets in the banks’ balance sheets in the form of loans and advances, security holdings, and others. Although these assets may complement each other, a bank’s decision on the proportion of each one to hold in its portfolio is often a trade-off that is informed by the assets’ prices, riskiness and safety, and innovations in the macroeconomy. Thus, macroeconomic shocks affecting market prices and riskiness may induce adjustments to banks’ private sector credit supply.

Suggested Citation

  • Odongo Kodongo, 2024. "The “crowding out” effect of sovereign debt," Development Finance Agenda, Chartered Institute of Development Finance, vol. 9(5), pages 12-13.
    • Handle: RePEc:afj:journ4:v:9:y:2024:i:5:p:12-13
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-defa_v9_n5_a4
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