External debt vulnerability in developing countries: the economic and policy perspectives

PurposeThe purpose of this study is to empirically investigate how external debt vulnerability has affected the economy of emerging countries over time, with particular reference to Sub-Saharan African countries. It also deals with the policy issues associated with the economic effects.Design/methodology/approachThe techniques of dynamic ordinary least squares and fully modified ordinary least squares are used in this investigation, covering the period 1990-2022. A panel of 43 Sub-Saharan African countries is used in the study.FindingsThe estimation results reveal that external debt vulnerability impacted negatively on economic growth, thus validating the concerns raised about the debt problem in Sub-Saharan Africa. Furthermore, the results revealed that domestic credit and openness of economy played a passive role and were therefore unable to cushion the adverse effect of debt vulnerability. Capital stock, however, stands out as the only variable that played a significant positive role in facilitating economic growth. The results are considered to be highly reliable for short-term forecast of economic growth and formulation of relevant policies.Originality/valueOver the years, economic analysts and stakeholders have expressed concern about the inadequate ratio of foreign reserves to external debt in developing countries. The effect of this external debt vulnerability on the economy of these countries has yet to be given sufficient attention by researchers. In view of this perceived void, this current study is carried out to determine the economic and policy consequences of the problem.