Government domestic debt arrears and private investment in Sub-Saharan Africa

Abstract

Purpose

This study investigates the effect of government domestic payment arrears on private investment. The authors argue that an increase in government domestic arrears can reduce private sector investment owing to the competition for credit.

Design/methodology/approach

The prediction is empirically tested using data for 33 Sub-Saharan Africa (SSA) countries for the period 2007–2018 using a panel general methods of moment estimation technique. This is also complemented with impulse responses derived from the standard vector autoregressive model.

Findings

The results show that an increase in government domestic arrears adversely affects private investment in SSA and most subregional communities within SSA. It also revealed that private investment negatively responds to shocks in government domestic arrears.

Originality/value

This is the first study that attempts to investigate the effect of government domestic borrowing arrears on private investment. It seeks to serve as a guide to governments in their domestic borrowing decisions to ensure timely servicing.

Citation

Kulu, E., Brafu-Insaidoo, W.G., Peprah, J.A. and Bondzie, E.A. (2022), "Government domestic debt arrears and private investment in Sub-Saharan Africa", African Journal of Economic and Management Studies, Vol. 13 No. 2, pp. 190-204. https://doi.org/10.1108/AJEMS-06-2021-0281