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External debt, fiscal consolidation, and government expenditure on education

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  • Elisé Wendlassida Miningou

    (World Bank Group)

Abstract

To face a debt crisis, countries often implement various forms of fiscal consolidation policies. This may have some implications for their education financing. This paper tries to better understand how debt and fiscal consolidation can potentially impact government expenditure on education. It shows that increased external debt is associated with a higher risk of fiscal consolidation which could, in turn, be associated with a decline in education spending. One percent increase in the external debt is associated with a 1.4 % decline in the spending per school-age child. Given the rising debt levels fueled by the COVID-19 response policies, a decline in education expenditure is to be expected in the post-pandemic world. Simulations show that in low- and middle-income countries, a 5 % increase in the external debt could lead to a $12.8 billion decline in the volume of education expenditure, all things being equal. This decline is almost equivalent to the volume of official development assistance to the education sector in 2020. This paper sounds the alarm bell for the potential impact of the COVID-19-related debt on education financing.

Suggested Citation

  • 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.
    • Handle: RePEc:shr:wpaper:22-02
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-2202.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Human capital; Education Expenditure; Fiscal Consolidation; Debt.;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • I2 - Health, Education, and Welfare - - Education

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