The impact of domestic debt on Uganda’s economic growth

Abstract

This study is an empirical investigation to assess the impact of domestic debt on Uganda’s Economic growth during the period 1980-2017. We use data on Domestic Debt, Net Fiscal Deficit, Exports, Savings, Real Gross Domestic Product, Population and Terms of Trade. This study adopts the ARDL Co-Integration technique to investigate the impact of public domestic debt on economic growth in Uganda and other selected key variables. The study also employs various post estimation tests to validate the fitness and stability of the models based on Gauss Markov assumptions, after employing the ordinary least square regression on various models. We find that debt negatively impacts economic growth while savings has a positive impact. The main findings indicate that public debt has a reducing effect on economic growth in the short-run while it has a positive long-run effect on economic growth. Other key variables that positively influence long-run economic growth in Uganda include exports, gross capital formation, private sector credit, FDI and government expenditures, while debt financing negatively affect economic growth in the long-run. The policy implication from these results indicate that government needs to promote trade in terms of exports earning, promote the private sector and ensure a sustainable fiscal discipline.