The demand for international reserves in Lesotho

The study examines Lesotho’s demand for holding international reserves and assesses the country’s reserve adequacy position over the period 1981- 2012. The results from the standard reserve adequacy benchmarks reveal that Lesotho generally has sufficient stock of foreign reserves to satisfy the minimum adequacy requirements, with the level of reserves in other periods being relatively higher than what is required. Furthermore, the estimates of Lesotho’s reserve demand function from the cointegration analysis suggest that the long-term reserve demand policies for Lesotho are positively related to average propensity to import, economic growth and export volatility while negatively associated with exchange rate volatility and opportunity cost of holding reserves. The former finding confirms that the precautionary motive plays a significant role in determining Lesotho’s demand for holding international reserves, while the latter indicates that reserve accumulation in Lesotho is based on profitability considerations. The results also show that although the demand for foreign reserves increased in the years of democracy, the country sometimes uses part its international reserves to finance government infrastructure projects.peer-reviewe

Nonlinear effects of bank regulation stringency on bank lending in selected sub-Saharan African countries

This paper investigates the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997-2017. It employs the dynamic panel threshold regression (PTR) model, which addresses endogeneity and heterogeneity problems within a nonlinear framework. It also uses indices of entry barriers, mixing of banking and commerce restrictions, activity restrictions, and capital regulatory requirements from the updated databases of the World Bank’s Bank Regulation and Supervision Surveys as measures of bank regulation. The linearity test results support the existence of nonlinear effects in the relationship between bank lending and entry barriers or capital regulations in the selected SSA economies. The dynamic PTR estimation results reveal that bank lending responds positively when the stringency of entry barriers is below the threshold of 62.8%. However, once the stringency of entry barriers exceeds that threshold level, bank credit reacts negatively and significantly. By contrast, changes in capital regulation stringency do not affect bank lending, either below or above the obtained threshold value of 76.5%. These results can help policymakers design bank regulatory measures that will promote the resilience and safety of the banking system but at the same time not bring unintended effects to bank lending.Economic

The impact of bank regulation on bank lending: A review of international literature

This paper reviews the theoretical and empirical literature on the impact of bank regulation on bank lending. It also structures the empirical evidence according to the impact of various bank regulatory measures on bank lending. The surveyed theoretical literature generally indicates that the impact of bank regulation on lending could be asymmetric, depending on the trade-off between the costs and benefits of bank regulation. The evidence from the empirical studies also shows that the impact of bank regulatory measures on lending is ambiguous. Although many studies found the impact to be negative, some established that it was positive while others found it to be insignificant or inconclusive. However, most empirical studies only assumed first-round effects using static and/or dynamic models, whereas the ones incorporating second-round effects using general equilibrium models were limited. Therefore, this systematic review of the literature indicates that policy recommendations regarding the appropriateness and efficacy of bank regulatory measures in influencing bank lending cannot be implemented uniformly across different regions or countries.Economic

Bank regulation in the selected sub-Saharan African countries: Dynamics and trends

This paper discusses the dynamics of bank regulation in the Sub-Saharan African (SSA) region during the period before the 1990s and post 1990s and describes the trends in bank regulatory measures between 1995 and 2017 using the updated databases of the World Bank’s Bank Regulation and Supervision Surveys. Before the 1990s, bank regulation in the majority of SSA countries was inadequate and that led to multiple occurrences of banking crises. As a result, many countries introduced the financial sector reforms from the late 1980s that included major adjustments in the banking regulatory and supervisory frameworks. In both low-income and middle-income SSA economies, bank regulatory environment became more stringent over time, driven by increased restrictions on bank entry barriers and ownership structure, as well as the introduction of macroprudential policies in the case of the former, while in the case of the latter, it was influenced by more restrictions on bank ownership structure and capital regulation requirements, as well as the adoption of macroprudential policies. Overall, the bank regulatory environment was slightly more stringent in middle-income than in low-income SSA countries over the period under review.Economic

Bank regulation, supervision and lending: empirical evidence from selected sub-Saharan African countries

This study investigates the impact of bank regulation and supervision on bank credit in 23 sub-Saharan African (SSA) countries and their low- and middle-income groups from 1995 to 2017. The long-run results indicated that stringent entry barriers and supervisory power reduced bank lending, but supervisory power mitigated the negative effect of entry barriers. Furthermore, positive shocks to entry barriers impacted negatively on bank credit, while negative shocks to capital requirements had an adverse impact on lending. In the short run, positive shocks to entry barriers, activity restrictions and capital regulations led to increases in bank credit, particularly in low-income SSA economies.Economic

Dynamics of Electricity Demand in Lesotho: A Kalman Filter Approach

This study provides an empirical analysis of the time-varying price and income elasticities of electricity demand in Lesotho for the period 1995-2012 using the Kalman filter approach. The results reveal that economic growth has been one of the main drivers of electricity consumption in Lesotho while electricity prices are found to play a less significant role since they are monopoly-driven and relatively low when compared to international standards. These findings imply that increases in electricity prices in Lesotho might not have a significant impact on consumption in the short-run. However, if the real electricity prices become too high over time, consumers might change their behavior and sensitivity to price and hence, energy policymakers will need to reconsider their impact in the long-run. Furthermore, several exogenous shocks seem to have affected the sensitivity of electricity demand during the period prior to regulation, which made individuals, businesses and agencies to be more sensitive to electricity costs. On the other hand, the period after regulation has been characterized by more stable and declining sensitivity of electricity demand. Therefore, factors such as regulation and changes in the country’s economic activities appear to have affected both price and income elasticities of electricity demand in Lesotho

The Existence Of Revenue Gap In South Africa

The paper provides an empirical analysis of the macroeconomic factors that enhance revenue gap in South Africa using the multivariate cointegration techniques for the period 1965 to 2012. The results from the cointegration analysis indicate that the revenue gap in South Africa is negatively associated with the level of imports while positively related to external debt and underground economy. The former finding is consistent with the notion that imports are subjected to more taxation than domestic activities because of certain features of international trade that tend to make tax evasion difficult. On the other hand, the positive relationship between external debt and tax gap shows that the South African government relies upon external debt to finance its budget deficit resulting from missing revenues. Furthermore, the observed negative effect of the post-apartheid dummy confirms that the tax policy reforms that South Africa introduced following the liberation in 1994 have led to a reduction in missing revenues. The results from the Granger causality test also show that there is a unidirectional causality running from imports and underground economy to revenue gap, while revenue gap on the other hand is found to Granger-cause national income and external debt in South Africa

Determinants of household energy fuel choice in Lesotho

The determinants of household energy fuel choice have not been studied in some developing countries, including Lesotho, despite the potential benefits such a study might have for policy design and implementation. This study uses the data collected by Lesotho’s Bureau of Statistics through a national household energy consumption survey of 2017, and a multinomial logistic regression to analyse the determinants of household energy fuel choice in Lesotho. The results indicate that the gender of the household head does not influence the choice of cleaner energy fuels for cooking and water heating. However, the age and education of the household head, household size, level of income, and access to electricity are drivers of energy fuel choice. The older the household head and the larger the household, the less likely it is to adopt cleaner energy fuels. Generally, higher income, access to electricity and a better-educated household head make a household more likely to adopt clean energy fuels. Thus, policies aimed at promoting household income-generating opportunities, effective provision of access to electricity, and investment in education can influence the choice of clean energy use within households. But these policies must be tailored to the unique characteristics of different settlement types, given that the significance of these determinants vary across rural, peri-urban, and urban areas

The Growth of Health Expenditure in Lesotho

The study analyses the factors behind the growth of health expenditure in Lesotho over the period 1980 to 2011. The cointegration test results reveal that income is one of the important factors explaining the growth of health spending in Lesotho, with public health expenditure being more responsive to changes in income than private health spending. Although the government’s role in disease patterns may be overshadowed by increased external funding, the findings highlight that Lesotho is still committed to improving the overall healthiness of its people. On the other hand, public and private health expenditure are found to follow different paths, with the ability of the citizens to finance their healthcare needs reducing the government’s pressure to offer more health services. External aid programmes also seem to have impacted positively on Lesotho’s public health spending while reducing a burden for privately-financed health services