Tag Archives: financing private sector

A high value of domestic credit to private sector (% of GDP) is a sign of a strong economy!

One of the indications or signs (but not the only one), of economic development and prosperity is the development and increasing share (role) of private sector in the national economy or GDP of a certain country. Referring to data from the world Bank, an economic measure of so called domestic credit to private sector ( % to GDP ) means that financial resources like loans and non equity securities are provided to the private sector by financial institutions like banks and other financial corporations all measured as percentages with respect to GDP ( or national size of economy ) . The higher this measure is, the higher financial resources or financing is to private sector in a country and so the greater opportunity and space for the private sector to develop and grow. The better the private sector gets and bigger role it has in national economy , the better is generally the health and development of the economy of this country is. To illustrate taking examples from statistics done by World Bank, China in 2013 has the ratio of domestic credit to private sector / GDP at a rate of 133.7 % . This explains why China has succeeded in high economic growth because it allowed a space and opportunity for private sector to get financing and as a result emerge and grow leading to a mixed economy instead of just communism. Another examples in 2013, Australia, USA , and UK have indications of 122.4% , 183.6 % and 176.8 % respectively , which is one measure that these countries have well developed and advanced economies because private companies have great financing as US companies for example have 13,000 billion $ of loans . In contrast, with all respect to developing countries like Algeria in North Africa and Argentina in Latin America have this ratio of 14.5 % and 14.6 % respectively ( although both rich in minerals and natural resources like oil, metals and agricultural products) means that private sector have less role.( These countries in one way or another have recently military regimes with governmental dominance for some decades). In general, this is a one important ( but not the only one ) indicator or measure of economic degree of development and success because it shows the well being and goodness of private sector working hand in hand with public or governmental sector especially nowadays.