Impact of Public External Debt Service on Economic Growth in Tanzania

Shilla, Benedicto (2023) Impact of Public External Debt Service on Economic Growth in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

This study analyzed the impact of public external debt services on economic growth in Tanzania from 1992 to 2021. Debt overhand theory and Ricardian equivalence theory were reviewed to ascertain the impact of the variable on economic growth. Conceptual framework used economic growth as the dependent variable, public external debt servicing as the independent variable. A quantitative research design was used to conduct the research study, the design used due to the nature of the study as it required to measure variables through quantitative type of data. The sample for data includes 30 observations, which are secondary type of data was from government authorities such NBS, BOT and World Bank. Study found, the public external debt service is positive and insignificant which means a unit increase of paying public external debt increase the growth of economy by 0.011. Also, public external debt stock and net gross capital formation are negatively on economic growth and insignificant to the model while net export are positively and insignificantly to the growth of economy. Moreover, the study revealed that there is relationship between economic growth and public external debt servicing, through both Johansen cointegration tool and VECM which shows both in short and long run relationship between these variables. The study concludes that the debt funds should be used wisely in production regimes which will boost internal final consumption, as it seen to have positive and significant relationship with the growth of economy will be assured. This will lead to the attainment of the payments of external debt services through strong economic fiscal policies. Study recommends, future research should be assessing the domestic public debt servicing in Tanzania. Keywords: Public external debt Servicing, Economic Growth, and External Debt.

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