External Debt and Depletion of African Economies Resources

ABSTRACT This study examines the intricate relationships between external debt and the depletion of economic resources across 54 African economies between 1990 and 2023, by running dynamic panel methods such as System GMM and panel cointegration to analyze endogeneity. The assessment points out a nonlinear debt limit at 55% of GDP and shows that Chinese secured loans have a greater negative impact on the environment than loans from other creditors. Our findings show that a 10% increase in the debt‐to‐GDP ratio leads to a 1.7% increase in deforestation and a 2.3% increase in mineral extraction, with these effects being more acute in resource‐dependent economies. The analysis further uncovered that the climate‐debt spiral, in which debt distress impels short‐term resource harvesting, therefore perturbing long‐term sustainability. The analysis gets a nonlinear threshold of debt at 55%, which elucidates the pronounced environmental impact of Chinese secured loans relative to other financing sources. We propose policies that can harmonize debt sustainability with ecological protection by means of conditional debt relief, governance reforms, and technology‐driven monitoring. The study adds to the flow of works on debt overhang, environmental economics, and sustainable development in resource‐abundant, capital‐scarce environments.