The Causal Relationship between External Debts and Economic Growth in East African Community

What is it about?

External debt is important to the economic growth of any country as it adds resources that bridge the gap existing in fiscal financing in a given period. External debt intends to propel and accelerate economic growth in a country to the level of which otherwise could not be attained absence of it. The sustainability of external debt toward the prosperity of country’s economy should be taken into account before securing the loan to avoid debt insolvency. It is expected the realized economic growth is reducing the demand of external debt over time as the impact of accelerated growth. If the realized economic growth calls for further greater external debt means there is a unidirectional causality running from external debt to economic growth whereby a country is said to be in overhang state. Therefore any country should ensure that the economic environment is created to reduce reliance on external financing assistance that creates higher external debt obligation which finally impedes the growth.

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