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

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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. repec:agr:journl:v:4(605):y:2015:i:4(605):p:189-198 is not listed on IDEAS
    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. 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 - AGER, vol. 0(4(605), W), pages 189-198, Winter.
    4. 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," WIDER Working Paper Series 042, World Institute for Development Economic Research (UNU-WIDER).
    5. repec:lje:journl:v:19:y:2015:i:1:p:71-103 is not listed on IDEAS
    6. 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.
    7. 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.
    8. 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.
    9. repec:unu:wpaper:wp2012-42 is not listed on IDEAS

    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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