Fiscal Sustainability in the PALOP Economies

Abstract

The Global Financial Crisis has typically led to a significant widening of fiscal positions (i.e. higher budget deficits and public debt), an issue that has been addressed by many researches on fiscal sustainability. Our aim in this study is to extend the extensive knowledge about fiscal policy sustainability in advanced economies by analysing the sustainability in the African continent. In particular, we examine the sustainability of public finance in Portuguese-speaking African countries (PALOP), using stationarity tests of external public debt-to-GDP ratios and cointegration tests between public revenue and public expenditure (as a percentage of GDP). Our findings for the period 1975-2019 suggest that some of the PALOP countries have endangered the sustainability of their corresponding fiscal positions. In fact, in our sample the solvency requirement seems to have been met only by Angola. In the context of a financial crisis, stemming from the COVID-19 pandemic, such sustainability issues are bound to be further challenged.