Can public expenditure on agriculture mitigate the effect of climate variability on agricultural credit in Africa?

Raymond K. Dziwornu, Charles Mapok, & James Ntiamoah Doku

Abstract
This study investigates how public agricultural expenditure can mitigate the effect of climate variability on banks’ agricultural credit supply in sub-Saharan Africa. Data was collected from 23 countries over the period 2006 to 2021 and analysed with the two-step generalised method of moments. The study found that banks exhibit dynamic agricultural credit supply behaviour, with temperature variability negatively effecting it and precipitation positively. In the presence of public agricultural expenditure, the influence of temperature variability on agricultural credit supply is not significantly mitigated, although the effect of precipitation is mitigated. Governments should deliberately direct adequate financial resources to develop greenhouse and climate-smart technologies, scale up agricultural credit guarantee schemes with banks and provide subsidised climate-resistant seeds and irrigation infrastructure to mitigate the effect of climate variability on agricultural credit supply. This will reduce banks’ risk perception of the sector and encourage them to lend more to agriculture for growth.