USING EXPONENTIAL SMOOTHING METHOD IN FORECASTING DOMESTIC CREDIT TO PRIVATE SECTOR OF GHANA

William Obeng-Amponsah,Elias Augustine Dey,Sun Zehou

doi:10.23925/2179-3565.2019v10i3p66-74

Abstract

The private sector of Ghana faces many problems with respect to raising capital for their operations; this is largely due to government relying heavily on the local credit market for funds for developmental projects. This study uses exponential smoothing method (ESM) in EViews to build a single sample model to forecast future domestic credit to private sector (DCPS) values in Ghana. Secondary annual data on DCPS spanning the period from 1982 to 2016 is used. The findings show that an exponential smoothing model with multiplicative error, additive trend and no seasonality fits the data best. The model had very small residual measures, which demonstrates a good model for forecasting. The estimated model is used to forecast the DCPS values for Ghana from the year 2017 to 2020. The results of this study will help private business people plan for the future. The results will also help policy makers to make informed decisions and formulate policies to improve the DCPS figures, since the private sector is the engine of growth, and crowding out would not be in the best interest of the government and the nation as a whole.

Highlights

The private sector is the focus for the current government of Ghana who took office after winning the December 2016 general elections
The big ones that will resonate in the ears of the electorates for a long time, and may be the yardstick to measure the performance of this government after the four years tenure are the ―one village, one dam‖ and ―one district, one factory‖
The study found that, though, credit to government increases profitability, it decreases efficiency drastically in developing countries, in advanced economies, there is no significant impact on profitability, but there is a positive impact on efficiency. (Hauner, 2008) concluded that, though the practice shows no effect on developed economies, it has long-term negative repercussions on financial development in developing countries and might eventually cause crowding out of the private sector

Summary

Introduction

The private sector is the focus for the current government of Ghana who took office after winning the December 2016 general elections. The big ones that will resonate in the ears of the electorates for a long time, and may be the yardstick to measure the performance of this government after the four years tenure are the ―one village, one dam‖ and ―one district, one factory‖. For this government to remain appealing to the voters in the election, it has no choice, but to strengthen the private sector to help in fulfilling their promises. This exposure puts banks and their borrowers at the mercy of governments‘ debt policies

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Conclusion