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The external debt-servicing constraint and public-expenditure composition in sub-Saharan Africa

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  • Fosu, Augustin

Abstract

In the light of the current global financial and economic crises, how would governments in sub-Saharan Africa (SSA) allocate their budgets across sectors in response to a binding debt-servicing constraint? Within a framework of public-expenditure choice, the present paper estimates constraint-consistent debt-service ratios and employs them in Seemingly Unrelated Regression involving five-year panel for up to 35 African countries over 1975-94, a period preceding the Highly Indebted Poor Countries (HIPC) initiatives. While observed debt service is found to be a poor predictor of expenditure allocation, constraining debt servicing shifts spending away from the social sector, with similar impacts on education and health. The implied partial elasticity of the sector’s expenditure share with respect to debt is estimated at 1.5, the highest responsiveness by far among all the explanatory variables considered, including external aid. Thus, if the social sector is to be protected, sufficient debt relief for SSA countries should be pursued.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39238.

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Date of creation: 2010
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Publication status: Published in African Development Review 3.22(2010): pp. 378-393
Handle: RePEc:pra:mprapa:39238

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Keywords: Debt-servicing constraint; public-expenditure composition; sub-Saharan Africa;

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  1. Steven G. Craig & Robert P. Inman, 1986. "Education, Welfare, and the "New" Federalism: State Budgeting in a Federalist Public Economy," NBER Working Papers 1562, National Bureau of Economic Research, Inc.
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  7. Augustin Kwasi Fosu, 2008. "Implications of the External Debt-servicing Constraint for Public Health Expenditure in Sub-Saharan Africa," Oxford Development Studies, Taylor and Francis Journals, vol. 36(4), pages 363-377.
  8. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June.
  9. Fosu, Augustin Kwasi, 2007. "Fiscal Allocation for Education in Sub-Saharan Africa: Implications of the External Debt Service Constraint," World Development, Elsevier, vol. 35(4), pages 702-713, April.
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Cited by:
  1. Quattri, Maria & Fosu, Augustin Kwasi, 2012. "On the Impact of External Debt and Aid on Public Expenditure Allocation in Sub-Saharan Africa after the Launch of the HIPC Initiative," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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