Sub-Saharan Africa's rising public debt stock: before another debt relief!

Abstract

PurposeIn light of the recent calls for another round of debt relief for African countries, by African finance ministers and governments, the aim of the study is twofold. First, the study examined the effect of public debt on macroeconomic performance. Two, the study also examined whether previous debt relief has impacted positively on sub-Saharan African economies.Design/methodology/approachThe study adopts the two-step system GMM that accounts for potential endogeneity and feedback effect in dynamic panel models. As robustness, the study performs the two-stage least square (2SLS) estimation method.FindingsThe study reveals that previous debt relief programmes only had a marginal effect on economic growth in the region. The study found that corruption impacts negatively on the effectiveness of debt relief to achieve the desired economic outcomes. The study also found that sub-Saharan African economies seem to have shifted away from traditional concessional sources of financing towards market-based lenders dominated by China.Originality/valueThe study adds to the growing evidence in the public debt literature by looking at the separate impact of domestic and foreign debts on macroeconomic indicators of economic growth, inflation, unemployment and exchange rate. The study also controlled for previous debt relief in light of the call for another round of debt relief.Graphical Abstract

Sub‐Saharan Africa's debt‐financed growth: How sustainable and inclusive?

“…In particular, the total external debt stock in the public debt portfolio increased dramatically from $465 billion in 2015 to about $702 billion in 2020 (IDS, 2021). Other scholars (see Olaoye, 2022a,b; Owusu‐Nantwi & Erickson, 2016) have also found that public debt can be a significant driver of economic growth in SSA.…”

“…The available evidence shows that a large number of African countries experienced strong economic growth in the last few decades, especially, in the last 10–15 years (Mijiyawa, 2013). However, some scholars (Avramovic, 1991; Olaoye, 2022a,b; The African Capacity Building Foundation, 2017; Whajah et al, 2019) have suggested that Africa's growth may not be unconnected with the recent and rapid increase in public borrowing across sub‐Saharan African countries (hereafter, SSA). Many African countries, following the COVID‐19 pandemic, have embarked on a new wave of borrowing to scale up public investment and spur economic growth (Olaoye & Olomola, 2022; Sennoga & Balma, 2022).…”

Empirical examination of public debt sustainability in African economies: A panel data analysis

“…The findings of the study indicate that declining exports negatively affect output growth and deteriorates external debt dynamics to unsustainability in the long‐run. Olaoye (2023) investigates external debt sustainability, employing GMM and two‐stage‐least‐square (2sls) models, in African economies and the findings indicate that the debt reliefs provided to African economies proved instrumental only temporarily. The findings show that corruption and inefficiency in public debt allocations have adverse effects on fiscal deficits and the output growth of African economies.…”

Macroeconomic implications of escalating stock of public debt: Evidence from sub‐Saharan African economies

“…One major issue that is attracting the attention of scholars and policymakers globally, and in sub‐Saharan African (SSA) countries, in particular, is the rapid increase in the level of public debts over the last few decades (Akram, 2016; Beqiraj et al, 2018; Carner et al, 2021; Fambeu et al, 2022; Kassouri et al, 2021; Law et al, 2021; Makun, 2021; Napo, 2022; Olaoye, 2022a, 2022b; Owusu‐Nantwi & Erickson, 2016; Sennoga & Balma, 2022; Wang et al, 2021). In the last two decades, the total public debt for SSA increased from an average of 27% of gross domestic product (GDP) in 2010 to over 56% in 2018.…”