The external debt-servicing constraint and public-expenditure composition in sub-Saharan Africa
AbstractIn 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 39238.
Date of creation: 2010
Date of revision:
Publication status: Published in African Development Review 3.22(2010): pp. 378-393
Debt-servicing constraint; public-expenditure composition; sub-Saharan Africa;
Other versions of this item:
- Augustin Fosu, 2010. "The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa," African Development Review, African Development Bank, African Development Bank, vol. 22(3), pages 378-393.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
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