LAUSR

Purpose External debt has been widely used to finance the budgetary needs of many countries. Although several studies have examined the relationship between debt and economic growth, there is limited literature on the capacity of a country to service its external debt. Therefore, this study examined the drivers of Sierra Leone’s capacity to service its external debt using yearly time series data from 1960 to 2024.Design/methodology/approach This study departs from previous studies by employing a non-linear auto-regressive dynamic lag (ARDL) model to estimate the asymmetric effects of real GDP, export, foreign direct investment (FDI) and gross domestic savings on the capacity of Sierra Leone to finance its external debt.Findings First, real GDP growth is the main enhancer of Sierra Leone’s capacity to finance its external debt. Second, the decline in exports and FDI is the reducer, harming the country’s capacity to finance its external debt. These results generally reveal that economic prosperity triggered by significant improvement in exports and FDI is critical in enhancing the capacity of a developing nation to finance its external debt.Practical implicationsThese findings could inform policymakers in designing more prudential macroeconomic policies to address the level of indebtedness in the country.Originality/value Existing debt studies focus on the debt-GDP ratio’s symmetrical effects on market variables. The capacity of a country to service its external debt is still exploratory. Moreover, no study has identified the enhancers and reducers of indebted nations’ external debt servicing capacity.