Public Debt Sustainability in Africa

Abstract or Introduction

This study assesses the sustainability of public debt in Africa by estimating a fiscal reaction function using the feasible fixed effects generalized least squares estimator with panel data from 40 African countries and annual time series from 2001 to 2021. I find evidence in support of public debt sustainability in Africa, with low-debt African countries exerting a greater fiscal effort in maintaining sustainable debt levels than high-debt African countries. The research questions are: Is public debt in Africa sustainable? Has public debt sustainability in Africa been weaker following the global financial crisis? Which debt group has exerted a stronger fiscal effort toward maintaining sustainable public debt levels? Is Nigeria’s public debt to GDP ratio unsustainable compared to Ghana, South Africa, Ethiopia, Algeria, Tunisia, and Egypt?

The rising levels of public debt within the continent indicate the possibility of a debt crisis among African countries if not carefully managed. The latest Debt Sustainability Analysis (DSA) under the Debt Sustainability Framework (DSF) for Low-Income Countries (LIC) jointly published by the IMF and World Bank affirms this fear as 25 African countries are either already in or at high risk of debt distress. . The report further indicates that 13 other African countries are at moderate risk of debt distress. Thus, with memories of the recent Greek debt crisis still fresh in mind, African countries are presented with a scenario of the destructive impact of a debt crisis if not expertly handled. It is therefore of great importance that African countries display robust fiscal discipline and pursue sound policies so as not to be at the risk of debt distress. Given the evidence of rising public debt levels and the possibility of debt distress in several African countries, there is a need to assess the sustainability of public debt in Africa and determine if African countries exert a significant fiscal effort toward maintaining sustainable public debt levels.