Debt Sustainability and Economic Growth: Evidence from Low Income Sub-Saharan African Countries

Abstract

The purpose of this study is to examine the effect of external public debt on economic growth and to examine the debt sustainability of twenty-four SSA countries over the period 2000-2017 using panel data analysis in which a fixed effect model is estimated. The study found out that external public debt, external public debt service, and trade openness have a negative and significant effect on the economic growth of the selected SSA countries. However, investment and domestic debt have a positive and significant impact on the economic growth. Additionally, the inflation rate and population growth have no significant effect on economic growth. For the purpose of examining the debt sustainability of the chosen countries, various tests were undertaken. The study has concluded that the external debt is unsustainable. In light of the findings, selected SSA countries should adopt an optimal balance between external and domestic debt to ensure sustainable economic growth. They should also implement measures to promote export and expand domestic investment.