Public Debt, Green Commitment and Environmental Quality in Sub-Saharan Africa

Abstract

Knowing the extent to which the fiscal state of a nation exerts pressure on the environment has become crucial in Sub-Saharan Africa. This study examines the effect of public debt on environmental quality, paying particular attention to the threshold at which the effect becomes nonlinear and the mediating role of natural resource extraction. It also examines how the effect of public debt is diluted when nations commit to regional green agreements. Employing panel data from 2007 to 2020 in 37 Sub-Saharan African countries, the system generalised method of moments (GMM) and dynamic panel threshold estimation techniques are utilised to achieve the study's objectives. The results reveal that public debt degrades environmental quality and that resource extraction mediates this relationship in the sub-region. However, public debt exhibits a non-linear relationship with a threshold value of 51.5%, below which is not harmful to the environment. Additionally, this study demonstrates that green commitment reduces the negative effects of debt on the environment. The study recommends that sub-Saharan African countries should manage public debt carefully to avoid exceeding the threshold value of 51.5 (% of GDP), where debt begins to be detrimental to the environment. Moreover, countries are encouraged to ratify regional environmental agreements such as the Africa Convention on the Conservation of Nature and Natural Resources.