This study examines the causes of liquidity gluts in Central and West Africa, focusing on the interactions between fiscal policies, external economic shocks, and financial market inefficiencies. Using the Autore gressive Distributed Lag (ARDL) model, the findings indicate that increased government spending in Ghana promotes borrowing and investment, enhancing economic growth and stability. Conversely, Equa torial Guinea’s dependence on oil revenues hampers effective liquidity utilization for broader economic development, highlighting the importance of sound fiscal policy. Key factors contributing to liquidity challenges include credit extension, government expenditure, and exchange rate fluctuations. The study underscores the urgent need for robust policy frameworks and regional cooperation to address these issues. Policymakers are urged to implement proactive measures, such as tightening monetary policy to control excess liquidity, enhancing central bank monitoring capabilities, and improving the investment climate through infrastructure development and reduced bureaucratic inefficiencies. Additionally, promoting f inancial inclusion in Equatorial Guinea and Nigeria, alongside carefully designed subsidy programs, can help manage liquidity. Developing strong pension fund systems in Rwanda and diversifying economies to mitigate external shocks are also crucial. By prioritizing productive investments and optimizing gov ernment expenditure, countries can foster economic stability and sustainable growth in the region. A multifaceted approach that strengthens monetary policy, enhances financial inclusion, and improves public financial management is essential for effectively managing liquidity conditions in Central and West Africa.
