Foreign debt and economic growth in Sub-Saharan Africa: A new look

Abstract

The study investigates the separate effect of short-term foreign debt, long-term foreign debt, and International Monetary Fund credit (IMF credit hereafter) on economic growth in sub-Saharan Africa (SSA henceforth), which have been overlooked in the literature. By engaging the panel quantile regression with fixed effects, and the Driscoll and Kraay standard errors technique to ascertain the robustness of results, we found that the effect of short-term foreign debt on economic growth in SSA is insignificant. We also found that long-term foreign debt in SSA exerted significant negative effect on economic growth. We then uncovered a positive and significant effect of IMF credit on economic growth in the region. The study therefore recommends that governments in SSA nations should consider reducing the portion of short-term and long-term foreign debts in the composition of foreign debt in favour of IMF credit; otherwise, economic growth might slow down and the United Nation’s sustainable development goals may be endangered in the region.