The effects of real interest rate, external and domestic debt to economic growth in Uganda

Abstract

This study used Autoregressive Distributed Lag (ARDL) approach provide analysis of the effects of real interest rate, external and domestic debt to GDP ratio and other factors on economic growth for a period (1986–2023) for Uganda. This study observes a negative relationship between external and a positive domestic debt and growth in the short run. The estimates of the model show that a 10 percentage point increase in the external debt-to-gross domestic product ratio will result in 91.9 percent point reduction in economic growth. In addition, a 10 percent increase in the domestic debt to GDP ratio results in a 30.7 percentage increase in economic growth. Also the real interest rate affects the economic growth negatively. A 10 percentage increase in real interest rate will result in a 1.06 reduction in economic growth. In the long run, the results established that both the external and domestic debt to GDP ratio affect economic growth negatively while the real interest rate affect economic growth positively. A 10 percent increase in external and domestic debt to GDP ratio will result in a 21.5 and 4.97 percentage reduction in economic growth respectively. While a 10 percentage point increase in real interest rate will cause a 2.7 increase in economic growth in the same period.