The Impact Of Public External Debt On Economic Growth Of Ethiopoia
Volume 5 - Issue 5, May 2022 Edition
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Author(s)
Mohammed Endris Awol
Keywords
Public External debt stock, Public External debt servicing, Economic Growth
Abstract
This study attempted to assess the impact of public external debt stock on economic growth of Ethiopia over the year from 1971 to 2018. Particularly, the study sought to answer weather public external debt stock and debt servicing has any significant impact on real GDP, the trends of public external debt stock and external debt repayment and this study also investigated the directional relationship between public external debt and real GDP of the country. The data used for this study was gathered from World Bank, world development indicator, international monetary fund, national bank of Ethiopia, ministry of finance and economic development and united nation conference for trade and development. The study was conducted by using Eviews 11 statistical software and employed Auto regressive distributed lag (ARDL) approach to real GDP data as a function of stock of public external debt, public external debt servicing, fixed capital formation, inflation rate, export, real effective exchange rate and trade openness. The empirical finding result from the study revealed that public external debt stock has an adverse significant impact to economic growth of Ethiopia both in the long run and short run with a coefficient of 0.133 and 0.050 respectively, which possess a greater challenge for the growth of a country. While public external debt servicing has positive significant impact to real GDP both in short run and long run with a positive coefficient of 0.0433 and 0.1356 respectively. On the other hand, the variable fixed capital formation, inflation rate, export and real effective exchange rate has positive significant impact to economic growth of Ethiopia. Thus, the study recommended that the government should minimize the reliance on external debt by diversifying the sources of finance through mobilizing its own resource domestically and enhance the exports of country and reduce imports of luxuries goods and also they should conduct those measures which minimize fiscal deficit so as to tackling the problem of severe external debt burden. The government should place an embargo on further acquisition of public external finance, except for top priority projects public external debt should use wisely and effectively in attention with the country’s short-run and long run macroeconomic conditions.
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