Budget Deficit, Domestic Debt and Economic Growth in Selected West African Countries: Evidence from Short-Run and Long-Run Dynamics

Abstract

The budget deficit is another key issue in the economic policies of West Africa. The budget deficit impacts economic growth and macroeconomic stability. The purpose of this study was to examine the impact of budget deficits and domestic debt on economic growth in Nigeria, Ghana, Côte d'Ivoire, Senegal, and Mali, from 1982 to 2023. The countries were chosen depending on the magnitude of their economies, fiscal structure, and the fact that they are representative of both Francophone and Anglophone countries. The countries represent 67.41% of the population of West Africa and contribute more than 70% of the GDP. The analysis was done through the Panel Autoregressive Distributed Lag (PARDL) method, which includes cross-section dependence, unit root, and cointegration tests. The results showed that budget deficits have no impact on economic growth, while domestic debt has a positive impact. The recommendations are that budget deficit should be financed through productive expenditure, the domestic debt market should be developed, and tax mobilization should be improved.