An Empirical Analysis o the Debt Sustainablity in Sub-Saharian Africa Amid Covid-19 Pandemic: A Dynamic Panel Approach

Abstract

Sub-Saharan Africa’s economic landscape has faced severe pressure due to the Covid-19 pandemic, which has heightened the fiscal vulnerabilities and raised concerns about the long-term financial stability in the region. This study examines the debt trajectory of the sub-saharan Africa (SSA) using the country specific debt indicatots as well as the macroeconomic data as the case study while analyzing their performance during and aftermath pandemic. The study employed a dynamic approach in its empirical study in order to connect the impact as the result of the pandemic shocks including contractions of the economy, debt accumulation, reduction in the fiscal revenues, increasing public spending in the healthcare The findings reveal that the region’s debt-to-GDP ratios rise by more than 50%, leading to the risk of debt distress. The study evaluates the effectiveness of international interventions, particularly the Debt Service Suspension Initiative (DSSI), in mitigating debt accumulation. Policy recommendations reveal the importance of structural economic reforms, improved fiscal transparency and diversification to boost debt sustainability. This study contributes to the growing discussion on post-pandemic recovery by providing insights into policy frameworks that may guide SSA countries towards sustainable economic growth.

Keywords

• Dynamic Panel Model
• Covid-19 Pandemic
• Debt Sustainability
• Public Debt

Supporting Institution

Ankara Yıldırım Beyazıt University, Social Science Institute

Ethical Statement

This paper is derived from a Ph.D. thesis prepared for submission to Ankara Yıldırım Beyazıt University, Social Sciences Institute, as part of the requirements for the doctoral degree in Public Finance.

References

1. Adam, C. S., & Bevan, D. L. (2005). Fiscal deficits and growth in developing countries. Journal of Public Economics, 89(4), 571–597. https://doi.org/10.1016/j.jpubeco.2004.02.006
2. Blanchard, O., & Cottarelli, C. (2021). [Makalenin/kitap bölümünün tam başlığı ve yayın bilgisi metinde eksik. Lütfen kullandığınız özgün kaynağın tam künyesini kontrol edip ekleyin.]
3. Bohn, H. (1998). The behavior of U.S. public debt and deficits. Quarterly Journal of Economics, 113(3), 949–963. https://doi.org/10.1162/003355398555793
4. Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt. BIS Working Papers, No. 352. Bank for International Settlements. https://www.bis.org/publ/work352.htm
5. Calderón, C., & Zeufack, A. (2020). Borrow with sorrow? The changing risk profile of Sub-Saharan Africa’s debt (Policy Research Working Paper No. 9137). World Bank. https://doi.org/10.1596/1813-9450-9137
6. Culpeper, R. (2008). Enhancing domestic resource mobilization in sub-Saharan Africa. International Development Research Centre (IDRC).
7. International Monetary Fund. (n.d.). Debt sustainability and development trade-offs: Challenges for emerging economies (IMF Working Paper). International Monetary Fund.
8. Diallo, I. (2009). Fiscal policy under constraints: Fiscal response to debt accumulation in Sub-Saharan Africa. World Development, 37(3), 540–552. https://doi.org/10.1016/j.worlddev.2008.07.012

9. Fosu, A. K. (2007). Fiscal allocation for education and health in Sub-Saharan Africa: Implications for economic growth. African Development Review, 19(3), 366–379. https://doi.org/10.1111/j.1467-8268.2007.00168.x
10. Gurara, D., & Ncube, M. (2013). Debt sustainability thresholds in Africa (Working Paper). African Development Bank. Hadjiyiannis, C., Karamanou, E., & Pashourtidou, N. (2020). Global shocks and debt sustainability in Sub-Saharan Africa: A panel VAR approach. The World Economy, 43(7), 1795–1813. https://doi.org/10.1111/twec.12897
11. International Monetary Fund. (2023). Regional economic outlook: Sub-Saharan Africa. International Monetary Fund.
12. Iyoha, M. A. (1999). External debt and economic growth in Sub-Saharan African countries: An econometric study (AERC Research Paper No. 90). African Economic Research Consortium.
13. Kose, M. A., Nagle, P., Ohnsorge, F., & Sugawara, N. (2020). Global waves of debt: Causes and consequences. World Bank. https://doi.org/10.1596/978-1-4648-1518-6
14. Mbaye, S., Moreno-Badia, M., & Chae, K. (2018). Debt sustainability in low-income countries: Institutions matter (IMF Working Paper No. 18/221). International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2018/10/23/Debt-Sustainability-in-Low-Income-Countries-Institutions-Matter-46201
15. Ndikumana, L., & Boyce, J. K. (2011). Africa’s odious debts: How foreign loans and capital flight bled a continent. Zed Books.
16. Panizza, U. (2008). Domestic and external public debt in developing countries (Discussion Paper No. 188). UNCTAD. https://unctad.org/system/files/official-document/osgdp20083_en.pdf
17. Pattillo, C., Poirson, H., & Ricci, L. A. (2004). What are the channels through which external debt affects growth? IMF Working Paper, WP/04/15. International Monetary Fund. https://doi.org/10.5089/9781451843809.001
18. Presbitero, A. F. (2012). Debt, growth, and natural disasters: A panel data analysis. Economics: The Open-Access, Open-Assessment E-Journal, 6(2012-26), 1–41. https://doi.org/10.5018/economics-ejournal.ja.2012-26 Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573–578. https://doi.org/10.1257/aer.100.2.573
19. Reinhart, C. M., Rogoff, K. S., & Savastano, M. A. (2003). Debt intolerance. Brookings Papers on Economic Activity, 2003(1), 1–74. https://doi.org/10.1353/eca.2003.0013
20. United Nations Economic Commission for Africa. (2022). Debt dynamics in Africa: Towards a sustainable debt strategy. UNECA.
21. Were, M. (2001). The impact of external debt on economic growth in Kenya: An empirical assessment. WIDER Discussion Paper No. 2001/116. World Institute for Development Economics Research (UNU-WIDER). https://doi.org/10.35188/UNU-WIDER/2001/277-0
22. World Bank. (2023). Africa’s pulse: An analysis of issues shaping Africa’s economic future (Issue 27). World Bank.