Determinants of Fiscal Deficit in Sub-Saharan Africa (1994-2023)
DOI:
https://doi.org/10.53819/81018102t5451Abstract
The economic consequences of budget deficits are a key topic in current empirical research. There is less emphasis given to the different potential causes of fiscal deficits. Furthermore, empirical literature presents contradictory findings. It is against this background that this study was carried out to establish the determinants of fiscal deficit in 40 Sub-Saharan African (SSA) countries from 1994 to 2023. Explanatory variables are real gross domestic product, per capita income, external debt service, real effective exchange rate and broad money. Annual secondary data for the key variables were sourced from the World Bank and IMF databases. Fixed Effect model and Prais-Winsten Regression with Panel-Corrected Standard Errors were used for estimation. Both real gross domestic product and per capita income negatively and statistically related with fiscal deficit while broad money had a positive statistically significant relationship. Real effective exchange rate had negative but insignificant effect while external debt service was positive and insignificant. The study recommends SSA countries need to upscale on ways of promoting economic growth so that they will be able to gain more revenue to fund public demands without relying on loans. Additionally, SSA central banks and governments should work together to coordinate monetary growth with fiscal goals.
Keywords: Fiscal deficit, External debt service, Real gross domestic product, Sub-Saharan Africa.
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