Abstract:

Servicing external debt in an era of global energy crises presents concerns for development in poor countries. The major challenge is the sustainability of economic growth, and poverty reduction. The debt constrained sub-Sahara African countries experienced negative growth in most of the 1990s due to a combination of high energy cost, debt burden, and externally induced macroeconomic shocks. While principal and interest payments threatened external sector viability, rising cost of energy imports emerged as competitive threat to external sector balance. The effects of the energy crises and debt servicing resulted in unfavourable balance of payments position in these countries. Available data from the International Energy Agency (2000)indicated that oil would remain the principal source of energy and that its demand would rise by 57 per cent in 2020, at an annual average of 2 per cent. The cost implication of the energy crises on the fragile economies of sub-Saharan Africa has scarcely been shown in the literature. However, evidence indicates that its external debt is unsustainable. Gaps also exist on the combined impact of energy and debt crises on growth in the highly indebted sub- Sahara African countries. This paper, employing cross country regressions examined the impact of the energy and external debt crises on economic growth in the highly indebted sub- Saharan Africa countries(SSA).Preliminary results indicated that the debt and energy crises had complicated economic recovery, limited trade expansion, worsened poverty and opportunities for economic growth in the affected countries. The paper therefore, canvassed the need for urgent debt write-off and sound macroeconomic policies that emphasized private sector export-led growth. The imperative for South-South Cooperation in developing alternative environmentally friendly and affordable energy sources in the region was also highlighted.

INTRODUCTION

It is tempting but misleading to assume that the demand for energy is a simple function of energy prices and the level of aggregate economic activity in the country. On the contrary, energy demand and associated costs are generally a function of economic activity and a microcosm of the total costs of operations, but this could become substantial depending on the degree of energy intensity of an economy. Consequently, both activity and the related energy intensities are driven largely by changes in global trade, lifestyles, technologies, and the structure of the international and domestic economy. High energy prices therefore, could significantly influence the tempo and direction of a country's economic activity. In recent times, global oil market conditions have become very volatile, being actuated in part by geopolitical uncertainties evidenced in anti-American sentiments in the Middle East, leading to attacks on Iraqi oil infrastructure by militant insurgents from within and outside Iraq objecting to America's continued presence in that country, high energy demand in the US and China as well as OPEC supply policies. The combination of these factors shifted market prices in April 2005 to a record US$53.6 per barrel. These adverse conditions may have been instrumental in constraining growth and generating unemployment and high budget deficits in the debt constrained oil-importing countries of sub-Saharan Africa(SSA).

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