External Debt Servicing and Growth Dynamics in Sub-Saharan Africa: Evidence from a Panel ARDL Framework

Abstract

Sub-Saharan Africa’s (SSA) persistent debt–growth paradox remains a central concern in development economics. Although external borrowing has traditionally been viewed as a mechanism for supporting capital accumulation and structural transformation, rising debt-servicing obligations have renewed concerns about fiscal crowding-out and weakened growth performance. This study empirically examines how debt servicing mediates the relationship between external borrowing and economic growth in SSA over the period 1996–2024, addressing a gap in the literature that has largely emphasised debt stock rather than flow burdens. Using a balanced panel of 39 SSA countries, the analysis employs the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) model, which is well suited to the region’s heterogeneous economies and accounts for cross-sectional dependence and mixed integration orders while distinguishing short-run dynamics from long-run relationships. The results indicate that external debt exerts a negative but statistically insignificant long-run effect on growth, whereas debt servicing generates a significant short-run crowding-out effect. Human capital remains a consistently positive driver of growth, while Investment shows weak effects, pointing to inefficiencies in capital use. Rather than advancing new theory, the study provides empirical clarification by showing that growth constraints in SSA stem less from debt accumulation per se than from servicing pressures interacting with institutional weaknesses. The findings highlight the importance of prioritising productive debt-financed investment, strengthening institutional capacity, and pursuing fiscal reforms that support growth while maintaining debt sustainability.