How robust is the link between growth and fiscal consolidation under global uncertainties? A reassessment for Sub-Saharan Africa

Persistent fiscal imbalances have long challenged Sub-Saharan African (SSA) economies, raising critical questions about the macroeconomic consequences of fiscal consolidation. While past research on advanced economies yields mixed evidence, much less is known about how fiscal tightening affects growth trajectories in developing contexts, particularly under global economic shocks. We reevaluate the growth impact of fiscal consolidation across 37 SSA countries over the 2000–2022 period. Employing an instrumental variable-local projection (IV-LP) approach, we identify the dynamic responses of economic growth to exogenous fiscal shocks while addressing endogeneity concerns. Our findings reveal robust evidence that fiscal consolidation consistently depresses economic growth in SSA. Importantly, this contractionary effect is substantially amplified under conditions of elevated global uncertainty – measured using a range of geopolitical risk and economic policy uncertainty indices. These results challenge recent claims of expansionary austerity in low-income settings and emphasize the need for adaptive policy design. We recommend adopting state-contingent fiscal rules that temporarily pause or soften consolidation efforts during periods of global volatility and resume them during more stable times. Such an approach can help SSA economies mitigate procyclical policy mistakes, preserve growth momentum, and build resilience to external shocks.