External Debt, Institutional Quality and Debt Sustainability in Sub-Saharan Africa: Evidence from a Fixed Effects Panel Model

The present study examined the effect of external debt and institutional quality on debt sustainability in Sub-Saharan Africa (SSA). Panel data analysis was employed using 26 selected countries covering the period 2007–2024. Debt sustainability was proxied by debt service as a percentage of exports, while external debt and institutional quality constituted the independent variables. Exchange rate, inflation, and trade openness were included as control variables. Data were obtained from the World Development Indicators (WDI) and Worldwide Governance Indicators (WGI) databases. The study employed descriptive statistics, correlation analysis, Variance Inflation Factor (VIF), Pesaran Cross-sectional Dependence test, panel unit root tests, Pedroni cointegration test, and Pooled Ordinary Least Squares, Fixed Effects, and Random Effects estimation techniques. The Hausman specification test identified the Robust Fixed Effects model as the preferred estimator. The findings revealed that external debt and exchange rate exert a positive and significant effect on debt sustainability, while institutional quality and inflation have positive but statistically insignificant effects. Trade openness, however, exerts a negative and significant effect, indicating that greater trade integration improves countries' capacity to meet external debt obligations. The study concludes that rising external debt and exchange rate depreciation increase debt sustainability pressures, whereas greater trade openness strengthens countries' capacity to service external debt. Institutional quality, although positive, does not significantly improve debt sustainability in the sampled countries. The study therefore recommends prudent external borrowing, strengthened institutional capacity, stable exchange rate policies, and greater trade integration to enhance debt sustainability in Sub-Saharan Africa.

External Debt; Institutional Quality; Debt Sustainability; Trade Openness; Sub-Saharan Africa.

1. Anajama, C., & Nyamudzanga, L. (2024). Rethinking debt sustainability and inclusive development in Sub-Saharan Africa: A systematic review. Development, 67(3), 315–325. [Google Scholar] [Crossref]

2. https://doi.org/10.1057/s41301-025-00436-8 [Google Scholar] [Crossref]

3. Assoum, F., & Alinsato, A. S. (2023). Only under good governance does public debt improve national income: Evidence from a dynamic panel threshold model for Sub-Saharan African countries. Journal of Government and Economics, 10, 100078. https://doi.org/10.1016/j.jge.2023.100078 [Google Scholar] [Crossref]

4. Ayana, I. D. (2023a). Effect of external debt on economic growth in sub-Saharan Africa: Evidence from 39 countries. Cogent Economics & Finance, 11(2), 2256197. [Google Scholar] [Crossref]

5. Bangura, M., Abidoye, R. B., & Adegoke, A. S. (2025). Examining the enhancers and reducers of external debt servicing capacity: Evidence from Sierra Leone. African Journal of Economic and Management Studies. Advance online publication. https://doi.org/10.1108/AJEMS-10-2024-0607 [Google Scholar] [Crossref]

6. Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251–1271. [Google Scholar] [Crossref]

7. https://doi.org/10.2307/1913827 [Google Scholar] [Crossref]

8. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74. https://doi.org/10.1016/S0304-4076(03)00092-7 [Google Scholar] [Crossref]

9. International Monetary Fund. (2024). Regional economic outlook: Sub-Saharan Africa—Reforms amid great expectations. International Monetary Fund. [Google Scholar] [Crossref]

10. International Monetary Fund. (2025). Regional economic outlook: Sub-Saharan Africa. International Monetary Fund. [Google Scholar] [Crossref]

11. Joshua, U., Babatunde, D., & Samuel, S. A. (2021). Sustaining economic growth in sub-Saharan Africa: Do FDI inflows and external debt count? Journal of Risk and Financial Management, 14(4), 146. [Google Scholar] [Crossref]

12. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical issues (World Bank Policy Research Working Paper No. 5430). World Bank. [Google Scholar] [Crossref]

13. Krugman, P. (1988). Financing versus forgiving a debt overhang. Journal of Development Economics, 29(3), 253–268. https://doi.org/10.1016/0304-3878(88)90044-2 [Google Scholar] [Crossref]

14. Lee, S., Kim, J., & Park, H. (2023). Institutional quality and public debt sustainability: Evidence from developing economies. Economic Analysis and Policy, 79, 421–436. [Google Scholar] [Crossref]

15. Manasseh, C. O., Abada, F. C., Okiche, E. L., Okanya, O. C., & Ogbuabor, J. E. (2022). External debt and economic growth in Sub-Saharan Africa: Does governance matter? PLOS ONE, 17(11), e0277154. https://doi.org/10.1371/journal.pone.0277154 [Google Scholar] [Crossref]

16. North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press. [Google Scholar] [Crossref]

17. Onyele, K., Onyekachi-Onyele, C., & Ikwuagwu, E. B. (2024). An empirical analysis on institutional quality, fiscal policy and debt sustainability in Sub-Saharan Africa (SSA). Journal of Governance Risk Management Compliance and Sustainability, 4(2), 16–31. https://doi.org/10.31098/jgrcs.v4i2.2178 [Google Scholar] [Crossref]

18. Oppong, C. (2023). Public debt and economic growth nexus in Sub-Saharan Africa: The role of institutional quality. International Review of Applied Economics, 37(3), 311–323. [Google Scholar] [Crossref]

19. Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(S1), 653–670. [Google Scholar] [Crossref]

20. https://doi.org/10.1111/1468-0084.0610s1653 [Google Scholar] [Crossref]

21. United Nations Conference on Trade and Development. (2025). Economic Development in Africa Report 2025. United Nations. [Google Scholar] [Crossref]

22. Were, M. (2025). Public debt challenges in sub-Saharan Africa. In Africa's future: Challenges and opportunities for growth (pp. 117–142). Oxford University Press. [Google Scholar] [Crossref]

23. https://doi.org/10.1093/oso/9780198932482.003.0006 [Google Scholar] [Crossref]

24. Were, M. (2024). Emerging public debt challenges in Sub-Saharan Africa (WIDER Working Paper No. 36/2024). Helsinki: United Nations University World Institute for Development Economics Research (UNU-WIDER). [Google Scholar] [Crossref]

25. World Bank. (2020). International debt statistics 2020. World Bank. [Google Scholar] [Crossref]

26. https://databank.worldbank.org/source/international-debt-statistics [Google Scholar] [Crossref]

27. World Bank. (2024a). International debt report 2024. World Bank. [Google Scholar] [Crossref]

28. https://www.worldbank.org/en/programs/debt-statistics [Google Scholar] [Crossref]

• The Correlation of Marketing Strategies and Financial Performance of Motor Parts Businesses in the City of Mati
• The Role of Blockchain-Based Smart Contracts in Enhancing Financial Transparency and Efficiency in the Emerging Market
• Exploring Intention among Universiti Teknologi Mara Terengganu Community to Donate into Education Waqf Fund
• Utilizing AHP Method to Rank Preference of Waqf Fund Usage for UiTM Terengganu, Malaysia
• The Influence of Portfolio Diversification on Financial Performance: Evidence from Listed Banks on the Ghana Stock Exchange