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Excess liquidity in the financial sector of Lesotho : main drivers and policy options

This study investigates the main drivers of excess liquidity in the financial sector of Lesotho using
Vector Auto Regression (VAR) analysis. The study also undertakes a comparative analysis of
Lesotho and CMA economies for economic and financial sector characteristics to benchmark
and assist policy recommendation. The results of the study suggest that excess liquidity in
Lesotho’s financial sector is driven by undeveloped financial sector as reflected by significant
private sector credit to GDP ratio in the results, government expenditure and central bank
activities in the open market operations, together with past levels of excess liquidity in the model.
Compared to CMA, financial intermediary in Lesotho is relatively undeveloped with government
dominating economic activity. The banking sector is observed to be non-competitive for deposits
as hinted by the wide intermediation margin compared to other CMA countries.

Identiferoai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/14893
Date10 July 2014
CreatorsThamae, Matsabisa
Source SetsSouth African National ETD Portal
LanguageEnglish
Detected LanguageEnglish
TypeThesis
Formatapplication/pdf

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