The Impact of External Debt on Economic Growth in Ethiopia
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Date
2005-07
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A.A.U
Abstract
A group of low-income countries classified as HIPCs have continued to
experience difficulties in managing and servicing their huge stocks of external
debt. Most of these countries including Ethiopia are in sub-Saharan Africa. The
relatively high level of Ethiopia's external indebtedness and rising debt burden
has serious implications on the country's development and debt sustainability
initiatives. While the economic performance continue to deteriorate, there have
been significant net outflow of resources to meet the debt obligations.
Tile study pin downs vital role of the emerging field of external debt and debt
indicators in the Ethiopian economy with emphasis on empirical relationship of
external debt and economic growth over the period 1963/64-2003/04. In doing
so, this paper examines the magnitude and structure of the country's external
debt, and its impact on economic growth across its three economic regimes.
Using time series data for the same period, the empirical results indicated that
past external debt accumulation has a negative impact on economic growth.
Debt servicing also appears to affect economic growth adversely.
Several policy implications emerge from the study. The simultaneous
attainment of sustainable levels of economic growth and external debt appear
difficult at the moment and could remain elusive if aggressive measures are not
undertaken. The results obtained from this study support the need for Ethiopia
to be considered for comprehensive debt relief measures. In addition, creating
credibility including political will to reforms is required to spur investor
confidence for both local and foreign investments.
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Keywords
External Debt on Economic, Growth in Ethiopia