Fiscal Allocation for Education in Sub-Saharan Africa: Implications of the External Debt Service Constraint

SummaryIncreasing attention is now being accorded to the importance of education within the framework of endogenous growth. Meanwhile, external debt servicing has appeared as a major constraint in many developing countries, especially in sub-Saharan Africa (SSA), raising the concern that fiscal allocation for education may have been severely limited. Using five-year panel data over 1975–94 for 35 SSA countries, the paper sheds light on the implications of a binding debt service constraint for the educational budget. While actual debt service has little or no effect on education spending, predicted debt service that reflects the debt burden exhibits a substantial adverse impact. The analysis, furthermore, detects an upward trend in education expenditure, contrary to the popular belief that the structural adjustment programs undertaken in many SSA countries may have reduced expenditures going to the social sector including education. Thus, a number of SSA countries may have managed to circumvent the external debt constraint, via debt rescheduling, for example. The results also suggest that removing the debt constraint is consistent with the Heavily Indebted Poor Country initiative to boost spending in the social sector.