Bank Credit, Private Investment And Macroeconomic Uncertainty In Sierra Leone

The paper investigates the effect of bank credit to the private sector on private investment in Sierra Leone and the role of macroeconomic uncertainty in the relationship. An autoregressive distributed lag model of private investment is estimated with annual data from 1980 to 2019, using OLS in the context of Pesaran-Shin-Smith approach. The results show that there is a long run relationship between private investment and the model variables and in the long run, bank credit has a positive and significant effect on private investment in Sierra Leone, while macroeconomic uncertainty vitiates this effect. In the short run however, bank credit is not found to have a significant effect on private investment, though it contributes positively and the impact of macroeconomic uncertainty on this effect is also not significant, though it reduces the impact of bank credit. Hence, during high macroeconomic uncertainty, like the current global environment, strongly leveraging on bank credit to the private sector is useful for boosting private investment in Sierra Leone. However, there is strong need for an end to higher global uncertainty, as it is inimical to the positive impact bank credit has on private investment.