Financial Stability and Economic Sustainability: The Case of Sub-Saharan African Countries

This study examines the effects of financial stability on economic sustainability, measured using two indicators: GDP per capita growth rate and adjusted net savings rate. Financial stability, in turn, is determined through three indicators: Z-score, bank credits, and liquidity of assets. From these three, we generated a financial stability index. Using the Generalized Method of Moments (GMM) with panel data from 28 Sub-Saharan African countries from 2010 to 2022, we obtained three main results. Firstly, financial system stability drives economic sustainability, enhancing the well-being of current and future generations. Secondly, financial stability can hinder economic sustainability when liquid assets and bank credits are allocated to environmentally polluting and resource-depleting activities. Thirdly, the effects of financial stability on economic sustainability depend on how sustainability is measured and how financial stability is apprehended. In other words, while banking stability is a factor in countries' progress toward sustainable growth, there exists a level of financial system stability that can hinder this progress. Therefore, this study recommends not only strengthening existing financial stability frameworks but also ensuring they comply with current economic sustainability requirements.