External Debt and Economic Growth; Lessons for Africa From South East Asia

Abstract

In recent years, external debt internationally has been considered as a means of spurring economic development and growth. Debt has been utilized in developing countries to finance capital intensive projects and finance budget deficits so as create an enabling environment for business and the economy to thrive. Africa has not been left out in accruing external debt in order to achieve their set out economic goals. Economists and observer have raised concern of the increased uptake of debt across the African country as servicing of this loans has become expensive and unattainable for some countries. This study seeks to shed more light on the consequences of external debt on economic growth by analysing economies of Africa in comparison with those of South East Asian economies. For a case study this research sought a data analysis of Kenya and Singapore economies. In line with the objectives, the study explored the relationship between external debt and economic growth of Africa and South East Asia economies, and that of Singapore and Kenya. The Study utilized IMF and World Bank data; this assisted in ensuring the data used was credible and verifiable. The study covered a 27 year period covering a period of 1990-2017. The Study also utilized SPSS version 20 and Excel data analysis kit 2010 for analysing data. The study found out that debt in the initial years had appositive impact to the African economies, however over the years it revealed a negative impact on the growth of African economies. This was in line with the debt overhang theory. In conclusion the study found out that, Kenya and other African countries should strengthen their anti-corruption agencies to enhance transparency and proper utilization of funds.