DOES FISCAL CONSOLIDATION IMPROVE CURRENT ACCOUNT BALANCE? EVIDENCE FROM SUB-SAHARAN AFRICAN ECONOMIES.

Abstract

The worrying debt situation in Sub-Saharan Africa has led to calls for government debt management by countries in the region in order to create additional fiscal space to enable them meet their development goals by reducing their budget deficits and ensuring that long-term public financial sustainability is achieved. This paper, using panel data analysis, provides answers to whether fiscal consolidation improves the current account balance of the countries in Sub-Saharan Africa. The results obtained showed a positive relationship between budget balance and current account balance in Sub-Saharan Africa; giving credence to the twin deficit hypothesis. The paper therefore concluded that fiscal consolidation is indeed a veritable tool to achieving stability of the external balance. Hence, it was recommended that governments in Sub-Saharan Africa should explore avenues that would boost their revenue generation towards financing their budget expenditures rather than overrelying on debt. To this end, measures including the widening of the tax base through targeting of the informal sector where perceived revenue leakages abound and enhancing their tax administration would increase government revenues.