Effects of external debt on national savings in Botswana

Abstract

The main objective of the study was to investigate the effects of external debt on national savings in Botswana using time series economic tools for the period 1980-2014. Annual data for Savings as percentage of GDP, GDP per capita, Exports as percentage of GDP, Exchange rates, Gross Fixed Capital Formation as percentage of GDP, Real interest rates and External Debt as percentage of GDP were examined. Vector Error Correction Model showed that external debt had a negative and statistically significant effect on national savings in Botswana. Furthermore, the results indicated that other variables such as GDP per capita, real interest rates, exports as percentage of GDP and Gross Fixed Capital Formation as a percentage of GDP had a significant influence on savings in Botswana. Due to the negative impact of external debt on national savings the government should put in place additional measures to the existing ones to ensure that these negative effects are turned into positive ones.

Keywords: External debt, national savings, Botswana, VECM