Exports, government debt and economic growth in sub-Saharan Africa

Exports in sub-Saharan Africa have struggled to generate the kind of growth witnessed in Southeast Asia on the background of rising government debt. This article considers the extent to which government debt, which has tripled since 2008, may have constrained export-led growth in the region. Further examined is the extent to which debt reduction is possible through revenue growth and expenditure cuts. From a sample of 44 sub-Saharan countries observed between 2004 and 2023, the impact of exports on economic growth is found to be stronger in countries with low to moderate levels of debt and weaker in countries with high debt. To achieve robust economic growth from exports, sub-Saharan countries need to keep debt below 45% of GDP. From the results, this requires cutting expenditure on GDP by 2-10 percentage points or raising revenue (excluding grants) by 2-12 percentage points. These estimates are in line with the primary balance adjustment of at least 2 percentage points recommended by the IMF. Estimates further indicate that cutting government expenditure reduces debt more than raising revenue. Counterfactual scenarios show that cutting government expenditure on GDP by 15 percentage points would reduce government debt from 55 to 45% of GDP. This paper addresses the question of why trade has hardly accelerated growth in sub-Saharan Africa and the importance of managing government debt as a moderating factor. The empirical evidence from a panel of 44 countries demonstrates the importance of prudent fiscal policies and debt management strategies as the growth effect of exports is constrained by high government debt. This evidence is consistent with the IMF's policy stance on the need for urgent debt management strategies in the sub-Saharan region.