Budget Deficit and Economic Development in East Sahara Africa
Keywords:
Budget deficits, Economic development, East Saharan AfricaAbstract
This study investigates the nexus between budget deficits and economic development in East Sahara Africa, focusing on Kenya, Tanzania, and Uganda over the period 2000–2023. Budget deficits, which occur when government expenditures exceed revenues, have been a recurring feature of fiscal management in the region, often influenced by electoral cycles, external shocks, and structural public finance challenges. Using secondary data from the World Bank's World Development Indicators, the study adopts an ex post facto design to analyze the effects of budget deficits, total debt service and external debt stocks on GDP growth rate in East Sahara African countries. Panel stationarity tests such as the Levin, Lin & Chu t* and ADF - Fisher Chi-square were applied to ensure robustness across the time period. The findings revealed that budget deficits have a non-significant negative impact on economic development. Total debt service have a negative significant effect on economic development in East Sahara African countries (p<.05). External debt stock has a negative non-significant effect on economic development in East Sahara African countries (p>.05). The research concludes that budget deficits are not inherently harmful but must be strategically managed to support development. It recommends that governments in East Sahara Africa should ensure that any fiscal deficits are strategically directed toward productive, growth-enhancing investments, such as infrastructure, health, and education, rather than recurrent or consumption-based expenditures. Secondly, governments should adopt policies that improve debt sustainability by expanding domestic revenue mobilization, renegotiating high-interest debt, and minimizing reliance on short-term or non-concessional loans. Thus, governments in east Saharan Africa should link external borrowing to clearly defined development projects with measurable returns and robust monitoring mechanisms. This enhances the productivity of debt and reduces fiscal vulnerability. The study contributes to the literature on fiscal policy in developing regions and reinforces the importance of aligning fiscal strategies with regional integration goals under the East African Community (EAC) framework to ensure macroeconomic stability and investor confidence.
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