Public Debt, Economic Growth and Inflation inAfrican Economies

Abstract

We analyse the implications of public debt on economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt affect economic growth and exhibit negatively, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. The highest average rates of real and per capita growth are achieved when public debt reaches 60% of the real GDP and an average inflation rate of 8.2%. When this ratio falls between 60-90%, the average rate of economic growth drops by up to 1.32 p.p. and continues dropping by up to 1.64 p.p. when the ratio exceeds 90%. Briefly, the high levels of public debt are reflected in reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the GDP and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. Identical behaviour of the GDP growth rates and inflation also appears in Sub-Saharan countries until the third interval (60-90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30-60%). For SADC countries, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. The high level of public debt is reflected in reduced rates of economic growth and increasing inflation rates.

Can public debt stimulate public investment and economic growth in South Africa?

“…The impact of public debt on economic growth in advanced and less advanced countries is marked by wide body of literature (Eberhardt & Presbitero, 2015;Lopes, Ferreira-Lopes, & Sequeira, 2015;Nantwi & Erickson, 2016;Stylianou, 2014). There is a complex and different relationship between public debt and economic growth across countries.…”

The Impact of Foreign Debt and Government Debt on Economic Growth in South Africa

“…Furthermore, Cooray et al (2016) further reveal that the accumulation of higher public debt is a result of the increased corruption in a nation. Da Veiga et al (2014) confirm that debt levels are influenced by the structure of revenue and expenditure of a country. They further also confirm that higher debt levels are also associated with higher unemployment rates.…”

Does Public Debt Moderate the Effect of Inflation Rate on Securities Market Returns in Kenya?

“…According to [43], in their non-Ricardian theoretical framework, higher levels of public debt are inflationary. Several other studies also support this view that higher public debt increases the rate of inflation, especially in developing countries [44], [45]. Another study [46] suggested that the optimal public debt should be pegged on the interaction between inflation rate and changes in government borrowing.…”