Growth Impact of External Debt in South Africa: Application of Linear and Non-linear Analyses

This study investigated both the linear and non-linear effects of external debt on economic growth from 1980 to 2022 in South Africa, using linear and non-linear ARDL models. The study also employed a two-regime autoregressive distributed lag (threshold-ARDL) model that involves the lag of economic growth and external debt and found that the threshold level of public debt to GDP in South Africa is 30%, beyond which external debt becomes detrimental to growth. The estimates showed that increasing external debt shock has a substantial adverse bearing on growth in the long run than decreasing external debt shock. The study recommended, among others, the need to expand local capital markets; effective and efficient domestic resource mobilisation such as improved tax revenue collections; efficient management of erstwhile inefficient state-owned companies; and mobilisation of private sector financing for optimal allocation and utilisation.