Dynamic Interaction between Fiscal Deficit and Macroeconomic Variables in Sub-Sahara African Countries

In spite of several efforts through various policy measures to reduce or overcome fiscal deficits that characterise fiscal administration of most developing economies, fiscal deficit persists and this might have had adverse effects on some key macroeconomic variables. Therefore, this study set out to investigate the dynamic interaction between fiscal deficit and macroeconomic variables in Sub-Sahara African Countries using annual data spanning from 2010 to 2023. The study employed econometric tool of one and Two-System Step Generalized Method of Moment (GMM) to estimate interaction between fiscal deficit and macroeconomic variables. The results of the study revealed that the effect of fiscal deficit on economic growth, money supply, public expenditure and gross fixed capital formation was positive but insignificant. However, the results also showed that the fiscal deficit exerted negative but significant effect on exchange rate, inflation rate and expected inflation rate. This implies that fiscal deficit weakens the value of domestic currency and that it is also inflationary. In line with the findings of the study, it was therefore recommended that there is need to strengthen macroeconomic policies such as income policy, trade or commercial policy and debt management policy to complement both monetary and fiscal policies in order to achieve Macroeconomic objectives.