Effect of External Debt on Economic Growth of Sudan: Empirical Analysis (1969-2015)

By Mohamed, Elwasila S. E. | Journal of Economic Cooperation & Development, January 1, 2018 | Go to article overview

Effect of External Debt on Economic Growth of Sudan: Empirical Analysis (1969-2015)


Mohamed, Elwasila S. E., Journal of Economic Cooperation & Development


1.Introduction

Most of developing countries need external financial resources to support their internal and external balances and supplement low levels of domestic savings in order to promote economic growth. Sudan is not an expectation and has been receiving international capital flows both in terms of foreign loans and aids for more than five decades and more recently increasing inflows of foreign direct investment. The major source of international capital flow to Sudan is foreign borrowing accumulating into external debt. The dual-gap analysis provides the framework which shows that the development of a nation may largely be dependent on investment financed through foreign aid and loans where domestic savings are lacking behind (Thirlwall, 1991, 2003). Hameed, Ashraf, and Chaudhary (2008) stated that external borrowing is ought to accelerate economic growth especially when domestic financial resources are inadequate. Within the orthodox macroeconomic framework in such cases foreign loans and external debt are expected to play a positive role on the growth process of the receiving economy. Soludo (2003) states that countries borrow for two broad reasons; macroeconomic reasons, either finance higher investment or higher consumption, and to circumvent hard budget constraint. This implies that an economy borrows to boost economic growth and alleviate poverty meanwhile. However, when debt reaches a certain level, it becomes to have adverse effect as debt servicing becomes a huge burden and countries find themselves on the wrong side of the debt-laffer curve, with debt crowding out investment and growth.

In special set of literature, external debt is understood to retard economic growth in the context of the debt overhang hypothesis and the crowding out of public investment resulting from debt services (Krugman, 1989). Alesina and Tabellini (1989) demonstrated that governments in Low Income Countries (LICs) with varying distributional goals and objectives often create fiscal uncertainty that generate capital flight, low investment and over-accumulation of external debts, which retard economic growth. Cohen (1993) found that the level of the debt had no important effect on investments during the debt crisis of the early 1980s although debt repayment is found to correlate negatively with investment, suggesting a crowding out effect. Also, Clements, Bhattacharya and Nguyen (2003) estimated a quadratic relation between debt and growth in some LICs finding that high levels of debt tended to crowd-out public investment.

However, one fact is that for many low income and middle income countries foreign loans are major sources of public receipts, which would reduce public deficit. If foreign loans are well utilized and managed, the accumulation of external debt should not lead to slow economic growth. In particular payment and management of debt services play the crucial role in this interplay of external debt and economic growth. At what rate a country achieves economic growth and capital accumulation as compared with how fast it accumulates debt and debt services are the two main processes which determine the net effect of external debt on economic growth. However, foreign borrowing with poor external debt management causes a country to default and inability to meet its debt obligation caused for example by the lack of information on the nature, structure and magnitude of external debt (Were, 2001).

The roots of Sudan's external debt can be traced to 1961 and in 1969 total external debt amounted to US$ 244 million compared with a GDP ofUS$ 1,848 which makes Debt/GDP ratio 13.20%. In 1978, Sudan had to adopt a World Bank/International Monetary Fund (IMF) sponsored Structural Adjustment Programme (SAP), with a view to revamping the economy making the country better-able to service its external debt. In the same year external debt had already cumulated to US$ 3,159 billion of which US$ 1,895 billion were arrears with a GDP estimated at US$ 8,074 (i. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Effect of External Debt on Economic Growth of Sudan: Empirical Analysis (1969-2015)
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.