The determinants of the structure of government expenditure in Africa

Abstract

This study investigates the determinants of the structure of public budgets in Africa using a panel econometrics approach. Data for 28 countries was collected covering the period 1995-2004. The determinants of the spending behaviour of these governments are analysed with the specific objectives to: identify the factors that determine the structure of government spending; identify a framework that explains the structure of government spending; specify and estimate a model that explains the allocation of the public budget and finally, to make policy recommendations on the basis of the findings. A number of hypotheses are tested, namely: an increase in the level of corruption would tilt the budget allocation towards sectors such as defence and general public services; an increase in the level of political instability would cause a shift in the budget allocation to sectors that seek to secure government’s political power; an increase in political liberty results in a shift in the budget towards those sectors favouring citizens’ preferences, such as education, health and social security and services; an increase in the public debt leads to a shift in the budget towards expenditure on economic services; and the mere presence of International Monetary Fund (IMF)-supported programmes in a country plays an instrumental role in the distribution of the budget. The main findings are the following: The proportions of the public budget devoted to education, health and public services had been on an upward trend during the period 1995-2004 while that of defence and ‘other’ remained high but declined. The share of the public budget allocated to economic services remained large but showed substantial volatility. On average, general public service expenditures account for the largest share of the public budget, while health and social welfare services account for the lowest share. The results show that corruption is associated with high levels of general public services and ‘other spending while it is negatively correlated to education, health and social welfare spending. Evidence to support the notion that high levels of corruption are associated with large budget allocations to the economic services category seems to be ambiguous. Also, the findings on the role of corruption in twisting the budget towards higher levels of expenditure on defence are not conclusive which contradicts the findings of similar studies. Furthermore, countries that suffer from political instability tend to allocate a larger slice of their budgets to the general public services and defence spending categories while countries that are politically stable tend to allocate more of their budgets to the education and social welfare sectors. However, there is no strong evidence to support the role of political instability in health spending. It is found that in those countries where human rights are acknowledged and the political process is more transparent, a larger share of the budget is allocated to social welfare spending. The role of IMF programmes in budget allocation reveals that countries that have implemented IMF programmes tend to allocate less of their budgets to defence and ‘other’ spending while increasing the budget allocation to education, health, social welfare and economic services. Furthermore, the budget allocation to general public services is shown to be affected by changes in the IMF programmes. Also, irrespective of the corruption status of a country, the IMF programmes tend to cause spending to move away from defence. In the case of education spending, it is found that countries that are exposed to IMF programmes tend to allocate a larger share of their budgets to education than those countries without such programmes. Budget priorities of neighbouring countries with regard to defence expenditure positively affect a home country’s defence budget allocation. This is also true with regard to the number of military personnel per capita of the population which is found to correlate positively with the share of defence expenditure in the budget. Lastly, the coefficient of public debt is unambiguously positive in the economic services and health expenditure categories which may suggest that countries that have high levels of public debt tend to allocate more resources to these sectors. Based on these findings an ‘ideal’ distribution of a budget based on the economically most successful countries in Africa is proposed. According to this framework it is ideal, in the African context, to allocate not more than 21 per cent of the public budget to general public services; 8 per cent to defence and 18 per cent to ‘other’ spending. A minimum of 18 per cent should be allocated to education; 10 per cent to health; 11 per cent to social welfare and 18 per cent to economic services. For policy purposes the following are noted: Firstly, for an ‘ideal’ budget allocation to be achieved in the African context, measures must be put in place to control the level of corruption. These may include the following: <ol> <li>Anti-corruption legislation: Countries that have legislated anticorruption laws should ensure that they enforce these laws.</li> <li>Public officers’ ethics law: Countries that have not legislated laws relating to a code of ethics for public officials are recommended to do so. Such laws would include requiring public officers to declare their wealth and to disclose any interests that they may have in private investments.</li> <li>Anti-corruption institutions: Existing institutions such as parliamentary committees on public finance and investment should be strengthened and if non-existent should be established and entrenched in the constitutions of the respective countries.</li></ol> Secondly, to ensure optimal public choice that reflects the preferences of the citizens, the government should ensure that political stability is a high priority on its development agenda. Governments should establish early warning systems to enable them to address instability before it degenerates into civil unrest and war. Measures to deal with any instability should be put into place, for example the parties involved in a conflict should be brought together in order that they may enter into a dialogue. At the continental level, peace efforts under the African Union (AU) should be encouraged to ensure that problems on the continent can be resolved by its leaders without recourse to outside support. Thirdly, accountability is also important in the internal allocation of the budget. Governments must be informed about collective and individual needs, listen to the voice of the public and embrace transparency and true accountability to its citizens. This can be achieved through: <ol><li>Government openness with regard to its fiscal policies.</li> <li> The establishment of information and communication offices where anyone seeking information regarding public matters can get assistance.</li> <li> The retraining of the police and other security personnel on matters related to public relations since, in Africa, many of the human rights abuses are committed by the police.</li></ol>