Fiscal imbalance, financial development and external debt accumulation in selected African countries Online publication date: Tue, 24-Jan-2023
by Samson Edo; Felix Ashakah
International Journal of Monetary Economics and Finance (IJMEF), Vol. 15, No. 6, 2022
Abstract: This study investigates external debt accumulation in four dominant African countries. It covers the period 2000Q1-2018Q4, and employs the generalised method of moments (GMM), auto-regressive distributed lag (ARDL) and vector error correction mechanism (VECM) techniques in estimating the relative impact of fiscal imbalance and financial development on external debt. Estimation results from the three methodologies, which are largely similar, reveal that both factors exerted significant positive impact. The impact of fiscal imbalance is, however, greater than that of financial development. In view of these findings, some policy measures are proffered to stem the rising trend of external debt in African countries. The measures include reduction in fiscal imbalance through rational budgeting, encouraging financial sector to provide domestic funds rather than facilitating external borrowing, diversifying export revenue base in order to minimise external borrowing, and lowering domestic lending rate to also discourage external borrowing.
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