Escalating Public Debt Levels and Fiscal Responses in Sub-Saharan African Countries

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Mupunga, Nebson
Ngundu, Tawedzerwa
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The pace of public debt accumulation in Sub-Saharan African (SSA) countries since 2010 presents worrisome debt sustainability concerns, with potential to undermine fiscal sustainability achieved over the last decade. The International Monetary Fund (IMF) and the World Bank have since called for fiscal consolidation in most SSA countries to ensure debt sustainability. Accordingly, this study seeks to assess how governments of SSA countries respond to the escalating public debt levels. The methodology applied entails estimating panel fiscal reaction functions using General Methods of Moments (GMM) technique for SSA countries for the period 2000 to 2016. These are complemented by single country regressions for selected countries. The results suggest that SSA countries have reacted to increases in public debt to GDP ratio by fiscal consolidation to maintain debt sustainability, though the reaction is lower than in most emerging and developed countries. This may reflect the difficulty to cut down on current public capital expenditures by most SSA countries. Moreover, the analysis finds that most SSA countries have been following pro-cyclical policies as depicted by an insignificant negative coefficient of the output gap. The policy implication from the analysis is the need for SSA to further strengthen fiscal consolidation to limit potential risk of debt distress.
Public Debt , Fiscal Reaction , Primary Balance , Panel Regression