Abstract: The main objective of this study was to assess the impact of government borrowing on economic growth in Rwanda. It adopted descriptive research design. The population of this study was the statistics from the National bank of Rwanda on government borrowing which will lead to indicative data such as the percentage of deficit to overall budget, percentage of borrowing relative to Gross Domestic Product. In this study secondary data were collected on government of Rwanda borrowing and economic growth between 2008 to 2016 and mainly focused on the government of Rwanda as the target population. Other fundamental information for the study included the treasury bills and notes, treasury bonds, National Bank overdrafts, direct borrowing and the general national debt that were measured semi-annually in a time series trend analysis for a period of nine year from 2008 to 2016. Collected data were collocated by use of descriptive statistics by mostly trend analysis features such as distribution tables and percentages and spread graphs between the variables in view of explicitly broadcasting the trends. The method of data analysis was simple regression model. In the effort to achieve that the researcher used the following model to guide the researcher through the analytical model as below: Y = a+BX1 +BX2+BX3+E where Y = dependent variable which is the economic growth of Rwanda. It measured absolute values and as a percentage to GDP, a = the constant term, BX1 = Treasury bills and notes which were measured by absolute values, BX2 = Treasury bonds was also measured by absolute values, BX3 = National bank overdrafts which was also measured in absolute values and E = the error term in the regression model. The study concluded that government borrowing positively related to economic growth in Rwanda. This implied that an increase in government borrowing affected positively in Rwanda. When a country borrows more to invest capital projects it is more likely to affect its economic growth in short run. The regression model used in this study was statistically significant explaining the effect of government borrowing on economic growth of Rwanda.
The study finally concluded that treasury bills, bonds and national bank overdrafts contributed positively to economic growth, this implied that an increase in government borrowing led to a decrease in economic growth. It was also concluded that an increase in government borrowing might impact negatively on economic growth and the private sector lack alternative source of financing. Government borrowing was found to have a positive relationship with economic growth. This implies that an increase in domestic government borrowing leads to a significant reduction in resources in the private sector which might be exposed to more taxes to pay interest on debt. This highly discourages private investments and impacts seriously economic growth. It is however important for the government to find an optimal level of debt which promotes both the private investments and economic growth. The researcher recommends that the government of Rwanda should find ways of increasing alternative sources of financing to both the government and the private sector so as to steer further its economic growth. This is also supported by the findings of this study which has proved that an increase in government borrowing results into a corresponding increase of economic growth. The government should also look for alternative means of raising revenues other than use of debt either internally or externally.
Keywords: Government borrowing Treasury bills and notes, Treasury bonds, national bank overdraft, economic growth.
Title: EFFECT OF GOVERNMENT BORROWING ON ECONOMIC GROWTH OF RWANDA: A CASE STUDY OF NATIONAL BANK OF RWANDA
Author: Benjamin Kabandana, Dr. Patrick Mulyungi
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
