Effects of Public Debt on Interest Rates in Selected East African Community Member States
Loading...
Date
2023
Authors
Maugu, Lenity Kananu
Korir, Julius
Kosimbei, George
Journal Title
Journal ISSN
Volume Title
Publisher
EANSO
Abstract
East African Community member states have embarked on various
strategies to reduce interest rates in the region to boost investment so as to
accelerate economic growth. However, despite the many reforms, the
interest rates are far higher than in other countries in Africa, which are more
developed. In an attempt to bolster investment, these states have increased
public debt rapidly, exceeding the debt ratio of 50 per cent of Gross
Domestic Product as provided in their treaty. The main objective of this
study was to examine the effects of public debt on interest rates in selected
East African Community member states. The study was anchored on the
loanable fund model and used a descriptive panel research design. The
dataset was drawn from World Development Indicators and Penn World
Tables for the period 1980 to 2020. The dataset was drawn from secondary
sources: World Bank's World Development Indicators, Penn World Tables,
Economic Surveys and Statistical Abstracts for the period 1980 to 2020.
The Panel Autoregressive Distributed Lag method was used to analyse the
study. The study found that public debt had a positive effect on the longterm interest rate in the five countries combined. Therefore, these
governments need to take effective measures to pursue fiscal discipline.
Additionally, EAC states can use concessional loans, which have more
favourable terms like lower interest rates, deferred repayments, and
income-contingent repayments.
Description
Article
Keywords
Public Debt, Interest Rate, Borrowing, Debt Crisis, Economic Growth, East African Community (EAC)
Citation
Maugu, L., Korir, J., & Kosimbei, G. (2023). Effects of Public Debt on Interest Rates in Selected East African Community Member States. East African Journal of Business and Economics, 6(1), 375-394. https://doi.org/10.37284/eajbe.6.1.1439