The determinants of external debt in Uganda (1990 - 2023)

Abstract

This study examines the factors influencing external debt in Uganda from 1990 to 2023 using data from the World Development Indicators (WDI). It focuses on the effects of inflation, trade openness, gross capital formation, gross domestic product (GDP), and government expenditure on external debt. The analysis employs the Autoregressive Distributed Lag (ARDL) model to explore both long-run and short-run dynamics. To ensure robust findings, unit root tests (Augmented Dickey-Fuller and Phillips-Perron) are conducted, along with a cointegration bounds test to confirm a long-run equilibrium relationship among the variables. The results indicate a positive relationship between government expenditure and external debt in the long run. In contrast, inflation and trade openness were found to have a negative impact on external debt over the same period. Therefore, the government should prioritize effective management of its expenditure by focusing on productive investments in key sector projects. Additionally, a systematic reform process is essential to reduce wasteful spending and eliminate inefficiencies within government initiatives.