Determinants of Public Debt in Africa and Selected Economic Blocs

Abstract

The continuous expansion of public debt across Africa and its economic blocs necessitates an in-depth understanding of its determinants. Existing studies largely adopt a homogeneous approach to examining public debt on the continent and empirical evidence in economic blocs is quite limited. Employing fixed effects and one-step Generalized Method of Moments (GMM) estimators on data from 46 African countries over the period 2000–2023, the study analyses the heterogeneity of the determinants of gross public debt. The three major economic blocs included are; the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the Southern African Development Community (SADC). The findings reveal both homogeneous and heterogeneous effects. Real GDP growth and primary balance exhibit a significant negative relationship with public debt across the entire continent and within the blocs. In contrast, the effects of other determinants are highly bloc-specific. The real interest rate is a significant positive driver only in SADC, while exchange rate depreciation positively affects public debt at the continental level but not within any economic blocs. Furthermore, foreign direct investment displays opposing effects on public debt; positive in ECOWAS but negative in EAC. Similarly, inflation, military expenditure and population growth show divergent, bloc-specific impacts. The study concludes that while certain core fiscal and growth variables have uniform effects, the homogeneous one-size-fits-all approach to public debt management is inappropriate for Africa. Effective policy must be tailored to the distinct economic designs, realities, and vulnerabilities of the major economic blocs on the continent.

Subject keywords: Public Debt; Africa; Economic blocs; one-step GMM