Public Debt Sustainability in Ethiopia

Abstract

The main objective of this study is to examine whether public debt in Ethiopia is sustainable or not. The study used 20 years time series data from 2000/01 to 2o20/21 to explain debt sustainability, using graphical, Dickey Fuller test of stationary, and fiscal approach of debt sustainability analytical analysis of literatures. As a result of which , it was found  that  Debt to GDP ratio is unstable or  inconsistent over a long period of time .From 2002 to 2009 the ratio exhibited a continuous decline rate where as from 2009 to 2020 revealed relatively an increasing trend .The study also aimed to forecast future values debt to GDP ratio using AR(1) time series forecasting model As a result of regression prediction  , the  future values have shown a declining trend from 2021/22 onwards  Most country’s experience have shown as a rule that country’s debt-to-GDP ratio climbs, the higher its risk of default becomes and governments strive to lower their debt-to-GDP ratios. In Recent years (2015 to 2020)   it was found that the country’s Debt to GDP ratio continuously mounted from 54% to 61%    as compared to the previous years. From this one can deduce that debt serving will compromise the development of the country and hence its debt serving will affects growth by crowding out social spending of the country.

Keywords: Debt sustainability and AR(1)

DOI: 10.7176/RHSS/11-21-03

Publication date: November 30^th 2021