Impact of External Debt and Debt Servicing on Economic Growth of West African Countries

Abstract

This study investigated the impact of external debt and debt servicing on the economic growth of West African countries, using Real Gross Domestic Product (RGDP) as a proxy for growth. An ex-post facto longitudinal panel design was employed, analyzing 39 years of secondary data from 1986 to 2024 across seven purposively selected ECOWAS member states: Nigeria, Ghana, Côte d’Ivoire, Senegal, Benin, Sierra Leone, and The Gambia. Data were sourced from the World Development Indicators (WDI), IMF, and national agencies, providing comprehensive insights into debt levels, debt servicing, foreign reserves, exchange rates, and macroeconomic performance. Data analysis was conducted using E-Views 9.0, applying panel least squares regression with fixed and random effects, guided by Hausman tests for model selection. Diagnostic tests for stationarity, cointegration, and cross-sectional dependence ensured robustness and validity. Results showed that Foreign Debt (FD) had a positive and highly significant effect on RGDP (coefficient = 0.4449, p<0.01), indicating that borrowing supported productive investments. Debt Servicing (DS) also positively and significantly affected RGDP (coefficient = 0.3936, p<0.01), suggesting that repayment schedules did not hinder economic growth. Foreign Reserves (FR) were insignificant (coefficient = 0.0004, p=0.8897), serving mainly as buffers, while Exchange Rate (ER) depreciation negatively and significantly affected RGDP (coefficient = -0.1623, p<0.01), highlighting the negative effect of currency instability. The study concluded that external debt and debt servicing significantly influenced economic performance, with FD and DS enhancing growth, FR maintaining stability, and ER depreciation posing risks. It recommended productive borrowing, strategic debt repayment, adequate reserves, and exchange rate stability to sustain long-term economic growth in the region.