JOURNALNX-THE RELATIONSHIP BETWEEN FINANCIAL SECTOR DEVELOPMENT AND SAVINGS MOBILISATION IN ZIMBABWE (1990-2018 (original) (raw)

This study seeks to investigate the relationship between savings and financial sector development in Zimbabwe using the Autoregressive Distributive Lag (ARDL) approach. The study used annual data from 1990 to 2018. The F-Bounds tests showed that there is a long run relationship between savings and financial sector development in Zimbabwe. The ARDL presented a bi-directional causality relationship between savings and financial sector development in both short and long run periods in Zimbabwe. The study also noted a stable long run relationship between credit to the private sector and domestic savings. Domestic savings indicated a positive impact on credit to the private sector. Current savings has a positive effect on future savings in Zimbabwe and therefore, the level of current savings determines the magnitude of growth of future savings. Real exchange rate has found to have a negative effect on private sector credits. In both periods, the real exchange rate was found to be statistically significant in explaining variations in the credit to the private sector. However, in the other periods, the real exchange rate showed a positive effect on credit to the private sector. The study also revealed that interest rate deposits has a positive effect on credit to the private sector in the previous period and is statistically significant at 10% levels. This implies that if the rate of return on savings is higher, savers are willing to save more hence, financial institutions might have the capacity to lend to the private sector in the future. However, on the hand interest rates deposits shows a negative relationship with domestic savings in other periods though not statistically significant. This implies that policy makers should not heavily rely on financial reforms to boost domestic savings hence emphasis should be put on maintaining high growth rate through agricultural development. The study also implies that in order to stimulate savings, there is need to implement appropriate financial reforms. The policy implication is that a stable exchange rate regime is critical in stabilizing the financial sector.