Effect of Public Debt on Poverty Levels Among the East African Community Member Countries

Abstract

The effect of increasing levels of public debt has become a great concern to most developing countries. As stated by the debt overhang hypothesis, high debt accumulation levels lower growth by restricting investments; as outstanding debt increases beyond a threshold level, governments begin to default due to a decline in their ability or willingness to repay its debts while avoiding the damaging effects of very high debt service. The research objective was to establish the effect that public debt has on the poverty levels of the EAC member countries. “Public debt, debt service to government revenue, debt service to export ratio, population growth rate and unemployment rate were in this research all independent factors. The response variable that the scholar endeavored explaining was the poverty levels of the EAC member countries. The data was gathered on annual basis over a ten-year span (Jan 2011 to Dec 2020). A descriptive research design being utilized in the research, with a fixed effects model utilized in examining the interrelationships among the study variables. STATA was utilized in analyzing the data. The research conclusion produced 0.7621 R-square figure, signifying the selected independent variables can explain 76.21 percent variance in EAC member countries poverty levels, whereas 23.79 percent was as a result of other variables not explored in this research. The F statistic was significant at a 5% level with p=0.000, as per ANOVA outcomes. This infers that the model was satisfactory in explaining poverty levels in EAC member countries. The regression outcomes moreover discovered that public debt and debt service to government revenue have a negative significant impact on poverty levels in EAC member countries. The study also revealed that population growth rate has a positive and significant link with poverty levels in EAC member countries. The other independent variables (debt service to export ratio and unemployment rate) did not have a significant impact on poverty levels. The research recommends policy makers need in guaranteeing public debt is used properly since it will reduce poverty levels among EAC member countries. The research too recommends need in controlling and manage the current levels of population growth rate among EAC member countries as it is one of the factors accelerating poverty levels.”