Exchange rate devaluations and external debt management in Africa

Abstract

This paper examines the impact of exchange rate devaluation on external debt management in Africa, focusing on both short- and long-term effects. Using the panel cointegration method and autoregressive distributed lag model, the study finds that exchange rate depreciation generally increases external debt as a percentage of GDP. The impact varies by exchange rate regime and natural resource intensity, with fixed regimes showing a reduction in debt burden and flexible regimes enhancing the impact of exports on debt reduction. The findings highlight the need for optimized exchange rate policies and financial sector development to manage external debt effectively.