XTERNAL DEBT AND ECONOMIC GROWTH

The persistent macroeconomic challenges in Sub-Saharan Africa have drawn increasing attention to the dual roles of government expenditure and external debt in shaping the region’s economic trajectory. While public spending is often expected to drive growth, its actual impact is frequently undermined by inefficiency, corruption, and fiscal mismanagement. Similarly, although, external debt can help finance development, excessive borrowing may hinder economic growth due to debt overhang. The aim of the study was to examine the effects of government expenditure and external debt on economic growth in Sub-Saharan Africa. The study used a panel dataset of 30 Sub-Saharan African countries covering the period 2009 - 2023. A two-step System Generalized Method of Moments (System GMM) approach was used to account for potential endogeneity and dynamic effects, while a Panel Threshold Model (PTM) was applied to explore non-linear relationships between external debt and economic growth. Key institutional indicators, including control of corruption, were incorporated to capture their mediating role in shaping the impact of government expenditure on economic welfare. The study found that government expenditure had a negative effect on economic growth but exerted a positive influence on economic welfare when moderated by institutional quality. Furthermore, external debt exhibited a threshold effect, with positive impacts on growth at
levels below 51% of GDP and negative impacts beyond 75%, supporting the debt overhang hypothesis. The study recommended improving fiscal governance, strengthening anticorruption measures, and adopting prudent debt management strategies to enhance the effectiveness of public spending and promote sustainable economic growth and development
in Sub-Saharan Africa.