The Role of Renewable Energy Consumption in Targeting Debt Sustainability in African and MENA Region Countries

Abstract

The primary aim of this study was to explore the impact of renewable energy consumption on debt sustainability in African and Middle East and North African (MENA) countries. Other objectives were to be investigated including foreign direct investment net inflows’ effects on those countries’ public debt, besides the relationship between carbon dioxide emissions and their public debt. The Fixed Effects Regression Model for Panel data analysis was employed through the utilization of different variables data of 21 countries in Africa and MENA regions, covering the period from 1999 to 2021. The conducted regression analysis incorporated central government debt as a dependent variable, and carbon dioxide emissions, FDI net inflows, the government effectiveness index, credit to the private sector, and renewable energy consumption as explanatory variables. The results revealed the existence of direct significant relationship between renewable energy consumption and central government debt, suggesting that reducing public debt leads to lower utilization of renewable energy. This could imply that going for the objective of debt sustainability requires the prevention of the wide utilization of renewable and clean energy. However, this impact could be overcome or lessened or even mitigated if it is aligned with the presence of highly effective governments and stimulated by FDINI oriented towards climate change mitigation since Green foreign direct investment inflows promotes the sustainable development and debt sustainability specifically with the presence of inverse relationship between the latest variables and central government debt. One recommendation from this research is that attracting FDI that promotes sustainable development within the context of effective governments can reduce government debt and should be explored for attaining the main objective without harming the ecological system or causing environmental degradation.