“In this paper a macro model is used to examine the relationship between internal and external debt and economic growth, using Ethiopian data. The idea behind the model is that a country’s rate of economic growth must at least match the annual rate of growth of its external debt if it is to avoid problems of debt servicing. If the rate of growth of the latter is higher than that of the GDP, the country transgresses the commonsense canon that at macro level it should create additional income from which to service the debt, if it is not to be over-burdened. The inevitable consequences of such transgressions are that the debt will be serviced from existing wealth, an option many countries may find difficult, if not impossible, to pursue. “
