The Political Economy Of PublicDebt And It’s Cost In Sub-SaharanAfrica: The Effect Of Transparency On The Cost Of Public Debt

The political economy of public debt in Sub-Saharan Africa (SSA) presents critical challenges, with public debt tripling over the past decade to $1.14 trillion by 2022. This study examines how transparency and other macroeconomic factors affect borrowing costs, using an OLS regression model for a dynamic panel where corruption serves as a proxy for transparency. Our study enhances existing literature by analyzing SSA as a whole and conducting regional analyses to uncover key differences across subregions. The findings reveal that public debt significantly increases borrowing costs, with government expenditure further amplifying fiscal pressures, while lagged debt costs highlight a self-perpetuating cycle of high borrowing costs. Exchange rate stability shows a modest but significant negative effect, reducing borrowing costs. However, transparency, measured through corruption as a dummy variable, shows no direct statistical significance contrary to reviewed empirical literature. Regional and temporal variations show the heterogeneity of debt dynamics across SSA where East and West Africa demonstrate stronger statistical results, with exchange rate stability in West Africa significantly lowering borrowing costs whereas East Africa remains exposed to currency fluctuations. Central and Southern Africa display weaker statistical significance due to greater data constraints. Post-2010, the influence of public debt on borrowing costs has intensified, reflecting heightened debt sustainability concerns following the global financial crisis.