An Externality Approach to the Impact of External Debt Dynamics on Poverty and Inequalities in Central Africa

This study analyzes the impact of external debt on poverty and inequality levels in Central African countries. It is based on a computable general equilibrium model enriched with a microsimulation based on the 2015 social accounting matrices and data from the 2013–2014 ECAM4, ECOSIT4 and EDS-RDC surveys. The results show that external debt exacerbates poverty in Cameroon, while the effects are mixed for Chad and the Democratic Republic of Congo (DRC). External debt is also likely to reduce inequality in Chad and the DRC. In addition, financing development through domestic debt offers significant advantages for Cameroon compared to external debt, including improved household living standards and higher economic growth. The government is therefore advised to favor an increase in domestic debt as a means of financing development in order to redress the balance of economic and social indicators. This involves implementing policies that encourage the issuance of public debt, such as encouraging local investors to subscribe to government bonds and optimizing the efficiency of the national financial market. In addition, it is essential that the government controls and regulates the level of public debt to ensure its sustainability and to avoid negative consequences in the long run.