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er argued that the failure of many SSA countries to meet their social needs and escape from debt is, as a result of the verity that the borrowed funds have been unproductively.

Clements, et al. (2003) also confirmed that debt affect growth via its effect on the efficiency of resource use, rather than through its discouraging effect on private investment. The same study also institute that the public debt does not slow down public investment but debt service does.

Elbadawi, et al. (1996), also assert that debt servicing also affect growth in some way through their effect on public sector spending. As economic circumstances deteriorate, governments discover themselves with fewer funds and public expenses are reduced. A fraction of this spending destined for social sector has severe effects on the very poor.

If foreign resource is to be balanced and desirable, it must be primarily be used to generate enough resources in the future for the repayment of principal and interest that is due (Comeliau, 2005).

Furthermore, the external debt and growth literature suggests that there is a unidirectional causal linkage connecting indebtedness and growth (Choudhry and Arvin, 1998). De Pinies (1989) focuses on debt sustainability and adjustment, and argues that as the international credit market imposes severe credit rationing on the heavily indebted Low Income Countries (HILICs), they were in effect imposing excessive import restraints, which is one of the major obstacles to a debtor country’s growth prospects. Selowsky and Tak (1986) indicate that since heavily indebted low-income countries have been servicing their debt by squeezing imports and investments to generate trade and equivalent saving surpluses, they have also been paying a high price in terms of forgone consumption and output growth.

2.4 Impact of External Debt, External Debt Service, Debt Overhang on Growth

The beneficial impacts of foreign borrowings on the economies of developing countries such as the ECOWAS countries, in the 1970s have been questioned by policy makers have had doubts about external borrowing. Neither the assumed positive effect of foreign borrowing on the level of savings, nor the presumed growth is supported by empirical evidence.

For example, Borensztein (1990) discovered that debt overhang had a negative impact on private investment in Philippines. The impact was high when private debt rather than total debt was employed as a determinant of the debt overhang. Iyoha (1996) establish related results for SSA countries. He established that high and unsustainable level of debt acts to reduce investment through both the debt overhang and the ‘crowding out’ effect.

Elbadawi, et al. (1996) also examine the consequences of debt overhang effect on economic growth using cross-section regression for 99 developing countries spanning SSA, Latin America, Asia and Middle East. They initiate that debt growth reduces economic growth while debt stock stimulates economic growth. Their results also showed that the debt burden has led to fiscal agony as manifested by harshly compacted budgets.

Mbanga and Sikod (2001) confirm that debt overhang and crowding out impact on private and public investments respectively using Cameroon as a case study. However, similar studies discovered a negative effect of external debt on growth for example, Degefe (1992).