Escalating Public Debt Levels and Fiscal Responses in Sub-Saharan African Countries
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Date
2020-09-01
Authors
Mupunga, Nebson
Ngundu, Tawedzerwa
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
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.
Description
Keywords
Public Debt , Fiscal Reaction , Primary Balance , Panel Regression