External Debt Burden and Economic Growth in Uganda (1985-2017)

Abstract

The main objective of the study was to assess the impact external debt burden on economic growth in Uganda. Different from previous studies, in addition to being country specific, the study also uses a longer time series period. The study is an extension of the Barro (1990) in which he has interpreted external debt as an extended tool of the fiscal policy which has long term effect on economic growth. It adopts the Error Correction Model (ECM) for analysis. The results obtained from the analysis reveal that external debt has a significant negative effect on economic growth of Uganda. Inflation and Official Development Assistance were also found to have a significant negative effect on economic growth while labour force was found to have a positive significant effect on economic growth. These results were tested for robustness and none of the tests revealed any inconsistency or any of the common econometric problems associated with time series data. Based on the results obtained the study recommended that government should expeditiously seek to implement structural reforms geared towards fiscal consolidation, debt management, public sector reform and tax reform, which are necessary for economic expansion as well as for fiscal and debt sustainability. The study further recommends that government should opt for domestic alternatives like improving the quality and quantity of labour force in the country which will boost production and income there by expanding the tax base which will reduce reliance on external assistance especially external debt.