The role of foreign public debt on foreign exchange reserve in SSA countries: Does governance really matters?

Abstract

AbstractThe debt and reserve are playing a pivotal role in the growth and development of national economies. To examine the role of foreign public debt (FPD) on foreign exchange reserve (FER) the study used a panel data by considering 20 Sub-Saharan Africa (SSA) countries by interacting FPD with governance index across 15 years. The dynamic and static Generalized Method of Moments (GMM) models were utilized after checking the possible assumptions. The GMM model found that FPD, governance index, labour and human capital predicted the FER positively and significantly. While foreign debt augmented with governance predicted the variation of FER negatively and significantly. Therefore, Sub-Saharan Africa’s low performance of foreign debt in enhancing foreign exchange reserve partly attributed to bad governance. Finally, the government of SSA countries should improve their quality of governance to properly utilize FPD to enhance the stock of FER, among others.

Keywords

• Foreign exchange reserve
• foreign public debt
• GMM model
• Sub-Saharan Africa