The crowding-out effect refers to a situation in which the state, by resorting heavily to borrowing on the domestic market, absorbs a significant portion of available savings and de facto reduces the resources accessible to businesses. This phenomenon, often theoretical in economics textbooks, takes on a very concrete dimension in countries where financial markets remain shallow and where national savings remain limited.

In many West African economies, commercial banks hold a high proportion of government securities in their portfolios. When the Treasury regularly issues bills and bonds to cover its budgetary needs, these instruments offer financial institutions a safe and relatively profitable investment. Within the WAEMU region, government securities issuance exceeded 8 trillion CFA francs in 2023, according to data from UMOA Titres, a level significantly higher than that observed five years earlier. This trend reflects the increasing financing needs of governments, but it also alters the allocation of credit within the economy.

For a bank, lending to the government generally carries less risk than financing a small or medium-sized enterprise (SME) with limited collateral and sometimes fragile accounting. The choice to invest in sovereign bonds rather than productive projects may then become necessary from a prudential perspective. This shift in resources translates into credit rationing for the private sector, particularly for SMEs that depend almost exclusively on bank financing.

The figures confirm this asymmetry. In several countries in the region, credit to the private sector represents less than 30% of gross domestic product, a ratio much lower than that observed in emerging economies in Asia or Latin America. In Senegal, BCEAO statistics indicate that the share of claims on the government in banks' balance sheets has increased in recent years, in parallel with the rise in domestic issuance. This trend does not automatically imply a contraction of credit to businesses, but it does contribute to maintaining stricter conditions for access to financing.

The crowding-out effect is not limited to a question of volume. It can also influence the cost of credit. When the government offers attractive returns to entice borrowers, companies must accept higher interest rates to finance themselves, especially if their risk profile is deemed uncertain. In a context of still fragile growth, this increase in the cost of capital can delay investments, slow innovation, and hinder job creation.

However, the relationship is neither automatic nor uniform. If government funds are directed towards productive infrastructure, the impact can be positive in the medium term by improving the business environment. The crowding-out effect becomes problematic when debt is used primarily to finance current expenditures or to address persistent imbalances without generating productivity gains.

The central issue, therefore, lies in balance. In economies where domestic savings remain limited and financial markets lack sufficient depth, excessive mobilization of resources by the public sector can stifle private initiative. Strengthening the diversification of financing sources, developing the private bond market, and broadening the base of institutional investors are avenues for mitigating this subtle but crucial mechanism in the growth trajectory.