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The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa

Author

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  • Augustin Fosu

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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Suggested Citation

  • Augustin Fosu, 2010. "The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 22(3), pages 378-393.
    • Handle: RePEc:adb:adbadr:624
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    Cited by:

    1. Owusu-Agyei, Samuel & Okafor, Godwin & Chijoke-Mgbame, Aruoriwo Marian & Ohalehi, Paschal & Hasan, Fakhrul, 2020. "Internet adoption and financial development in sub-Saharan Africa," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    2. Ibrahim Mohammed Adamu & Rajah Rasiah, 2016. "External Debt and Growth Dynamics in Nigeria," African Development Review, African Development Bank, vol. 28(3), pages 291-303, September.
    3. repec:agr:journl:v:4(605):y:2015:i:4(605):p:189-198 is not listed on IDEAS
    4. repec:unu:wpaper:wp2012-42 is not listed on IDEAS
    5. Kaisa Alavuotunki, 2015. "General budget support, health expenditures, and neonatal mortality rate: A synthetic control approach," WIDER Working Paper Series wp-2015-108, World Institute for Development Economic Research (UNU-WIDER).
    6. Guido Tubaldi, 2018. "The HIPC initiative and its impact on health and education expenditures," Global Politics Review, Global Politics Review, vol. 4(1), pages 6-30, October.
    7. Riffat, Nisma & Munir, Kashif, 2015. "Exploring the Channels and Impact of Debt on Economic Growth in South Asia," MPRA Paper 66830, University Library of Munich, Germany.
    8. Quattri, Maria A. & 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," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126879, International Association of Agricultural Economists.
    9. Sadia Shabbir & Hafiz M. Yasin, 2015. "Implications of Public External Debt for Social Spending: A Case Study of Selected Asian Developing Countries," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(1), pages 71-103, Jan-June.
    10. Quattri, Maria A. & 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," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126879, International Association of Agricultural Economists.
    11. Sani Usman Gurowa & Shamaki Mohammed & Mohammed Ola Maroof, 2023. "Nexus Between Public Debt Servicing and Social and Community Sector Spending in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 457-466, August.
    12. Pr Henri Atangana Ondoa, 2018. "The effects of heavily indebted poor countries initiative (HIPC) on millennium development goals (MDGs) for education," Review of Social Economy, Taylor & Francis Journals, vol. 76(4), pages 453-479, October.
    13. Blanca Moreno-Dodson & Nihal Bayraktar, 2015. "Public Spending and Growth in an Economic and Monetary Union," World Bank Publications - Reports 22928, The World Bank Group.
    14. Fagge, Muhammad & Ibrahim, Taofik, 2018. "Public Debt Management in Nigeria: The Impacts of Institutional changes after exiting from the Paris Club in 2006," MPRA Paper 100364, University Library of Munich, Germany, revised 10 Dec 2018.
    15. Elisé Wendlassida Miningou, 2022. "External debt, fiscal consolidation, and government expenditure on education," Cahiers de recherche 22-02, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    16. Olusegun Ayodele Akanbi, 2016. "External debt accumulation in sub-Saharan African countries: how fast is safe?," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 8(2), pages 93-110.
    17. Khemais Zaghdoudi, 2018. "Is the relationship between external debt and human development non-linear? A PSTR approach for developing countries," Economics Bulletin, AccessEcon, vol. 38(4), pages 2194-2216.
    18. Miningou,Elise Wendlassida, 2023. "External Debt, Fiscal Consolidation, and Government Expenditure on Education," Policy Research Working Paper Series 10475, The World Bank.
    19. Kaisa Alavuotunki, 2015. "General budget support, health expenditures, and neonatal mortality rate," WIDER Working Paper Series 108, World Institute for Development Economic Research (UNU-WIDER).
    20. Walid BENAYED & Foued Badr GABSI & Samia OMRANE BELGUITH, 2015. "Threshold Effect of Public Debt on Domestic Investment: Evidence from Selected African Countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(605), W), pages 189-198, Winter.
    21. Waqar Muhammad Khan & Tahira Ilyas & Aneela Akhtar Chattha, 2023. "Exploring the Drivers of Government Expenditure Patterns in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(4), pages 689-699.
    22. repec:lje:journl:v:20:y:2015:i:1:p:71-103 is not listed on IDEAS
    23. Ibrahim Mohammed Adamu, 2016. "Public Investment in Nigeria. Does External Debt Matter?," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(4), pages 120-138, December.
    24. Joseph Onjala, 2018. "China's development loans and the threat of debt crisis in Kenya," Development Policy Review, Overseas Development Institute, vol. 36(S2), pages 710-728, September.

    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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