Nexus Between Public Debt and Uganda’s Economic Growth

Abstract

Economic growth and public debt are intricately linked, with public debt influencing growth in both beneficial and detrimental ways, depending on its size, structure, and the overall state of the economy. In growing countries like Uganda, public debt has the potential to finance crucial public investments, which can also lead to instability and reduce private investment. This study examined the impact of public debt on economic growth and evaluated its effects. A comprehensive evaluation of theories regarding the correlation between public debt and economic growth was carried out, focusing on both positive and negative effects. An Autoregressive Distributed Lag (ARDL) approach was utilized using time series data from 1992 to 2022. The research revealed that while foreign debt had a positive impact on GDP per capita in the short term, domestic debt did not exhibit significant effects. Long-run results indicated that the correlations between these variables and economic growth were statistically not significant. The ARDL model provided a good fit for explaining the variation in GDP per capita. As per the findings, the research recommended that policies aimed at reducing trade barriers, improving export competitiveness, and negotiating favourable trade agreements should be prioritized to maximize the benefits of trade openness. The government should focus on creating policies that channel domestic savings into productive investments rather than allowing them to hinder growth