Quantile Regression Analysis of the Economic Impact of Business and Household Credit in Lesotho

What role does credit allocation play in shaping economic performance in small, developing countries? While prior research shows that business credit tends to support growth and household credit may lead to instability, most studies focus on larger economies. Using quarterly data from Lesotho between 2009 and 2020, this study applies quantile regression to examine how credit to businesses and households affects real economic output across different performance levels. Business credit significantly enhances output, especially in lower-performing periods, while household credit consistently has a negative effect. These results are robust across estimation methods. The findings suggest that business credit supports investment and productivity, whereas household credit may fuel consumption-driven debt. This highlights the need for targeted credit policies to promote productive lending and financial stability in developing economies.