Investigating The Drivers of Escalating External Debt in Highy Debt Distressed Nations using Appropriate Econometric Techniques

Abstract

This study examines the escalating  foreign debt in ten highly debt distressed countries namely Egypt, Ghana, Ethiopia, Lebanon, Pakistan, Kenya, Sri- Lanka, Tunisia, Ukraine and Zambia over the 1990 to 2022 by obtaining data from the World Bank's WDI database. Initially applying a pooled OLS model, the study encounters issues like cross-sectional dependence and heteroscedasticity, leading to the use of quantile regression,  Kao co-integration and Fully Modified OLS regressions for more robust results. Findings indicate that rising debt is driven by high debt servicing costs and growing imports. To mitigate this, the study recommends restructuring debt, banning unnecessary imports and improving economic growth, international reserves, foreign investment, domestic savings and development spending while addressing governance and infrastructure challenges.