Financial Sector Development in Africa: Opportunities ... - World Bank

168 Fuchs, Losse-Mueller, and Witte
Figure 5.5 Year-on-Year Growth Rates of Credit to the Private Sector in
Sub-Saharan Africa
Percent
40
35
30
25
20
15
10
5
0
2006M01
2006M05
2006M09
2007M01
2007M05
2007M09
2008M01
2008M05
Year/Month
Sub-Saharan African average
Sub-Saharan African median
2008M09
2009M01
2009M05
2009M09
2010M01
2010M05
Source: IMF’s International Financial Statistics database 2010.
windfalls, peace dividends in postconflict situations, or donor bubbles)
followed by busts induced by internal or external shocks are not
uncommon.
The experience of various African jurisdictions prior to the financial
crisis highlights the limitation of focusing primarily on the ratio of credit
to GDP. The more volatile macroeconomic environments put additional
demands on decision makers.
For example, in Ghana, Nigeria, and Zambia, high growth in private
sector credit (above 30 percent) prior to the crisis was offset by
commodity-driven GDP growth inflating the denominator. Additionally,
economic development from a low base is likely to have a disproportionately
high initial trend trajectory. In Ghana, for example, credit to GDP
has more than tripled in a decade, with nominal credit growth frequently
rising above 30 percent, but the ratio of credit to GDP remained
below the trend level in the years before the crisis. The high trend
momentum was caused by fast growth from a low base of credit to GDP,
and would make it more challenging for authorities to determine appropriate
buffers (see figure 5.6). In low-income countries in general, buffers
would need to be triggered by also looking at nominal private sector
growth.
The implementation of such a countercyclical buffer regime poses
significant challenges in building supervisory capacity and establishing