The role of COVID‐19 in worsening the debt sustainability in developing economies – The case of Ghana and Kenya

Abstract

The SARS‐CoV‐2 coronavirus pandemic has raised public debt sustainability issues, especially for Heavily Indebted Poor Countries (HIPC). Developing countries with limited fiscal space have had to take on significant external debts to help deal with the negative effects of the pandemic. This has led to further increases in the debt levels of these countries, with the potential to trigger a debt default. Addressing these issues, this study uses a framework for fiscal policy and public debt sustainability analysis. The results confirm the impact of the SARS‐CoV‐2 coronavirus pandemic on the debt levels of Ghana and Kenya. This study recommends the creation of domestic fiscal buffers and fiscal space toward the attainment of long‐term debt sustainability, contrary to the popular view of offering debt relief to these countries.