Navigating public debt: The interplay of economic, environmental, and institutional factors in Africa

Public debt can be a two-edged sword, one that, when properly invested in productive activities promotes economic growth otherwise mismanaged can be detrimental to a country's economic growth and overall fiscal health. Especially in African countries, public debt has been a contentious issue with most of these economies facing the risk of debt distress. Identifying drivers of public debt would go a long way in ensuring public debt sustainability. This study seeks to determine the drivers of public debt in Africa. Towards this end, the study examines the effect of government effectiveness, control of corruption, inflation, official exchange rate, trade openness, debt burden, economic growth, urban population, and air pollution on public debt on 37 African economies over the period 1990-2022. From the PCSEs and FGLS model employed, government effectiveness, corruption control, exchange rate, trade openness, and economic growth have a negative effect on public debt whereas inflation, debt burden, carbon emissions and urbanization positively influence public debt. The country-specific coefficients obtained from AMG and DCCE models indicated heterogeneity in the effects on public debt. This study largely recommends tailored country-specific policy interventions towards public debt management and ultimately achieving public debt sustainability. Moreover, economic growth should be facilitated through investment in productive activities as this would enhance revenue and reduce dependence on public debt to avert fiscal pressures associated with high debt levels. As an area for further study, this research recommends that the thresholds for economic growth and inflation that would cause considerable public debt reduction be explored.