CREDIT POLICY AND FOREIGN ASSETS IN SELECTED AFRICAN ECONOMIES

This paper is concerned with examining the usefulness of the monetary approach to the balance of payments for a number of African economies. A model is developed to estimate the relationship between domestic credit and changes in foreign assets in order to guide policymakers in implementing credit policies aimed at reaching a given balance of payments objective. The general conclusions of the study are that the monetary approach does have some applicability to developing countries and that excessive increases in credit are a major cause of external disequilibrium in many African economies.