External debt dynamics and the growth paradox: An empirical investigation of South Sudan’s financial resilience

Abstract

This study evaluated the effect of external debt composition on the economic growth of South Sudan for the period 2013–2018. Debt composition refers to the sectoral allocation and structural characteristics of externally borrowed funds, including the sectors to which borrowed resources are channelled and the distinction between productive and unproductive expenditure. A case study design with mixed methods was adopted, drawing data from 60 respondents through questionnaires and interviews. Descriptive statistics were used for analysis. The findings revealed a significant misalignment between debt allocation and growth-enhancing sectors: 83.3% of respondents confirmed that borrowed funds were predominantly directed to the defence sector, while agriculture received only 41.7%, health 35%, education 30%, roads and infrastructure 30%, tourism 23.3%, and sports 28.3%. Regarding determinants of economic growth, respondents identified human capital (88.3%), government policies (83.3%), inflation management (78.3%), and sustainable fiscal policy (75%) as most important. The study established that the composition of debt-financed expenditure, characterised by dominance of unproductive security spending and neglect of human capital and productive infrastructure, has undermined the country’s ability to generate economic returns sufficient to service its debt. The study concludes that the composition of South Sudan’s external debt has been a significant factor in the negative debt-growth relationship, and recommends a fundamental reorientation of debt-financed spending toward agriculture, education, health, and infrastructure. Keywords: External Debt, Growth Paradox, South Sudan, Financial Resilience, Macroeconomic Stability, Debt Sustainability.