The external debt-servicing constraint and public-expenditure composition in sub-Saharan Africa

Augustin Fosu ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Debt-servicing constraint; public-expenditure composition; sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: F34 H50 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (24)

Published in African Development Review 3.22(2010): pp. 378-393

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Journal Article: The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa (2010)
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