The Impact of Budget Deficit on Economic Growth in Sub- Saharan Africa

Abstract

In spite of the plethora of fiscal policy measures adopted and applied over the years, budget deficit still remains pervasive in sub–Saharan African Countries. Therefore, this study set out to examine the relationship between budget deficit and economic growth in sub–Saharan Africa. This study used annual data spanning from 1986 to 2020 and the data were sourced from the World Bank Development Indicators. Static Panel Data of Fixed and Random effects and Pairwise Granger Causality were employed to capture the stated objectives. The result of the Panel Unit Root test revealed that the variables are not stationary at levels but made stationary at the first difference. The results of the fixed effect showed that budget deficit has significant positive effect on economic growth while other variables have insignificant positive link with economic growth in sub- Saharan Africa. The results from the Pair-wise granger causality test exhibited presence of a bi-directional relationship between Exchange rate (EXR) and External Debt (ED) meaning that Exchange rate granger cause External Debt and vice versa. However, uni-directional relationships exist between Real Gross Domestic Product (RGDP) and Inflation Rate (INF), ditto the other variables. Therefore, the study concludes that budget deficit is highly significant to economic growth in sub- Saharan Africa. Based on the findings of this study, it was recommended that governments of SSA should put up sound and workable policies that are needed to improve economic stability in sub–Saharan Africa. More so, Governments should set on motion institutional and regulatory frameworks that can strengthen the existing policy measures so as to enhance economic stability in sub-Saharan Africa

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