Assessment of the Fiscal Sustainability in Africa Using the Panel Unit Root and Cointegration Tests

Abstract

One of the approaches to examine fiscal sustainability is to test the intertemporal budget constraint, which involves testing the stationarity of government revenues and expenditures, the primary budget balance, and the first differences of public debt. Part of this approach includes testing cointegration and causality among different pairs of variables. This paper focuses on assessing the fiscal sustainability of African group of countries in the period between 1995 and 2021. It has been found that fiscal sustainability is present, but in a weak form. Fiscal sustainability was confirmed when considering a constant and trend in calculations, while deviations were observed among first- and second-generation unit roots tests, and considered different pairs of fiscal variables. The study serves as a starting point for a more extensive analysis of fiscal sustainability. For more accurate findings, it would be necessary to categorize countries into smaller and economically more homogeneous groups and analyze them using other fiscal sustainability methods as well.