Financial sector transparency and borrowings a focus on government borrowings in Africa.

Abstract

For the past decade, developing countries' governments have witnessed an astronomical surge in their debt profile despite several attempts by international financial institutions to help reduce their increasingly soaring debts. In this study, however, the use of financial sector transparency as a debt management tool to lower soaring government debts is explored for the first time in Africa. Employing a Generalized Method of Moments (GMM)panel data of 23 African economies between 2004 and 2020, the study reports the following findings. First, a positive effect of private and public sector-led financial transparency is reported on government borrowings. Second, the study reports that private and public sector-led financial transparency are substitutes given that the interactive term of private and public sector-led financial transparency was negative. Third, the study reports an inverted U-shape effect of private and public sector-led financial transparencies on government borrowing implying that these transparencies would yield desirable reducing effects on government borrowings only beyond some threshold of transparency. Guided by the findings obtained from the study, governments in the continent who are also the regulators of the financial sectors, are informed that financial sector transparency can serve as a tool to help reduce their debts and policymakers should also make a conscious effort to strengthen the use of the financial sector transparencies (FST) to reduce governments debts in the future.