AN EVALUATION OF THE EFFECT OF EXTERNAL DEBT ON ECONOMIC GROWTH IN SIERRA LEONE

Abstract

<p>The study sets out to determine whether external debt has a significant relationship with economic growth indices in Sierra Leone. An ex-post facto research design was adopted for the study. Data on gross domestic product, external debt, capital expenditure, and exchange rate were obtained from the Bank of Sierra Leone Statistical Bulletin 2024 for the period 1993-2023. Ordinary Least Square Method of regression was used in which external debt was regressed on gross domestic product, capital expenditure, and exchange rate. A diagnostic test was done using the Augmented Dickey-Fuller (ADF) unit root test, as well as the co-integration and error correction method. Findings show that there is a positive relationship between external debt on one side and gross domestic product (GDP), exchange rate and capital expenditure. The findings imply that small external debt accumulation stimulates the economy, while huge debt has a negative impact. External debts were misappropriated, while debt servicing and repayment stifled infrastructural development. The study recommends, amongst other things, that external debt should be obtained when it is absolutely necessary and applied for productive ventures but not for social services, ensuring that the marginal productivity of the loan is greater than the interest incurred as a result of it. At the same time, the government should strengthen anti-corruption agencies to reduce embezzlements and misappropriations to the barest minimum by reviewing laws establishing them.</p><p> </p><p><strong>JEL</strong>: F34; E22; C22; H63; O11</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0792/a.php" alt="Hit counter" /></p>