The Impact of external debt on economic growth in Sub Saharan African countries (2013- 2022)

Author

Mauye, Simbiso

Title

The Impact of external debt on economic growth in Sub Saharan African countries (2013- 2022)

Abstract

The study looks into how external debt affects the economic expansion of nations in Sub-Saharan Africa. Many emerging economies have long been concerned about high levels of external debt, especially those in Sub-Saharan Africa (SSA), where debt loads have traditionally hampered economic growth. This study aims to investigate empirically, from 2013 to 2022, the link between GDP growth and external debt in a panel of 45 SSA countries. Hedges and Vevea's (1998) Random and Fixed Effects regression model is used in the study to examine the data. 45 SSA nations are included in the sample; these were chosen based on WDI data availability. The variables under control were external debt, interest rates, labor force growth, population expansion, corruption control, inflation, government spending, foreign direct investment, and exports. The annual GDP growth rate is the dependent variable.
The findings show that the impact of external debt on economic growth in SSA nations is statistically significant negative. Keeping all other things equal, an increase of one percentage point in the external debt to GDP ratio typically results in a 0.05 percentage point decline in the GDP growth rate. The results also indicate that while FDI inflows and tighter regulation of corruption typically raise GDP, high rates of inflation, excessive government spending, a big labor force, and limited trade openness are adverse to growth. These results suggest that an over-reliance on borrowing from outside sources may impede regional economic development. Strategies for managing public debt that reduce non-productive debt, increase the effectiveness of public investment, and encourage growth focused on exports should be given top priority by policymakers. Reducing debt vulnerabilities and promoting sustainable growth in the region would also need strengthening public financial management and domestic resource mobilization.

Date

June 2024

Publisher

BUSE

Keywords

Economic Growth

Impact

External Debt

Supervisor

Dr Kairiza