Citation:

Nicholas Bamegne Nambie, Philomena Dadzie, Evans O.N.D. Ocansey, Kwaku Sarbeng Adjabeng-Akrofi, Moses Jackson Donkor "Public Debt, Debt Servicing, and Fiscal Space in Developing Economies in Africa" International Research Journal of Economics and Management Studies, Vol. 5, No. 10, pp. 76-90, 2026. Crossref. https://doi.org/10.56472/25835238/IRJEMS-V5I10P109

Abstract:

This study examines the dynamic relationship among public debt, debt servicing, and fiscal space in developing economies in Africa, with the objective of providing evidence to inform sustainable fiscal management and debt-policy decisions. The study uses annual macroeconomic data obtained from the International Monetary Fund and covers a panel of African developing economies over the study period. The empirical analysis employs the Panel Autoregressive Distributed Lag framework and its associated error-correction specification to distinguish between short-run dynamics and long-run equilibrium relationships among the variables. The findings indicate the existence of a stable long-run relationship among fiscal space, public debt, and debt servicing. The positive relationship between public debt and fiscal space, in the short term, suggests that government borrowing can enhance, at least for a period of time, the ability of governments to fund spending and cover any budget deficits. Nevertheless, the adjustment process shows us that the increased fiscal capacity created through debt-financed spending may not last forever, especially if the amount of debt being accumulated results in rising interest costs. Therefore, the findings of this study point out how important it is for countries to borrow responsibly, manage their debt effectively, and increase their domestic tax revenues so as to preserve fiscal space. This study adds to existing literature as it provides empirical evidence of the relationship between debt accumulation and fiscal capacity in African developing economies. Additional research could include other variables like institutional quality, composition of debt, exchange rate risk, and political economy variables to help explain fiscal space and debt sustainability in more detail.

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Keywords:

Fiscal Space, Public Debt, Debt Servicing, Debt Sustainability, Fiscal Policy, Domestic Revenue Mobilization, Macroeconomic Dynamics.