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

Abstract

Purpose

In 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/approach

The 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.

Findings

The 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/value

The 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