External Debt and Economic Growth Nexus in Somalia: 1990 - 2021

Purpose: The study aimed to empirically investigate the effect of external debt on economic growth in Somalia from the period of 1990 to 2021. Methodology: The study was conducted based on an ex-post facto research design with a focus on longitudinal design. The study fully used quantitative research to evaluate the secondary data for scientific evaluation and to determine the conclusions for the objectives. Augmented Dickey Fuller Test (ADF) was used to examine the stationarity properties of the time series before analysis. Co-integration techniques developed by Johansen (1988) and Johansen and Juselius (1990) and Error Correction Model (ECM) were used to examine the long-run and short-run association between external debt and economic growth respectively. Multiple regression analysis was also done to capture the impact of external debt and economic growth in Somalia from 1990 to 2021. Findings: According to our research findings, Somalia's economic growth has been adversely affected by its external debt, both in the short-run and long-run, over the past three decades. The impact of external debt on Somalia's economic growth has been found to be negative and statistically significant. Unique Contribution to theory, Practice and Policy: Firstly, based on our findings, the study recommends that Somali government should avoid borrowing from commercial sources due to the fact that commercial sources have higher interest rate and short maturity periods than multilateral sources. Secondly, the study recommends Federal government of Somalia to launch tight borrowing strategies, external financing management and stimulating economic policies in order to avoid ill effects of external debt and debt crisis in the future. Lastly, there is a need for the Somali government to increase the possibility of easily data accessibility in order to help economists, researchers and all interested parts to be able to use them in an advanced level to contribute to more accurate and reliable findings for the improvement of Somali economic situation today and in the future.