Total Debt Servicing and Tax Revenue in Sub-Saharan Africa

Abstract

Debt financing serves as a deterrent in meeting developmental projects, thereby limiting the effect of revenue generation through taxing. Associated with the rising external debt has been a crushing debt service burden. The paper sets out to determine the effect of tax revenue on the total debt service of sub-Saharan African countries and to assess how inflation, exchange rate, and corruption control the effect of tax revenue on the total debt service of sub-Saharan African countries. An ex-post facto research design was adopted to test and analyze a dynamic panel estimated with the system General Method of Movements (GMM) data set for this study. Dynamic panel data was adopted because it uses lagged regressors, a combination of time series and cross-sectional dimensions of the data set to eliminate weakness; it is most applicable to this study. The study found that total debt service is positively and significantly affected by CIED, VAT and TXP, but the impact of TXP was insignificant. The outcome was found to be positive and insignificant, with controlled variables in model 2 being positively moderated by INF and CRP, while EXR negatively moderated the effect of tax revenue and total debt service of SSA countries. It was, therefore, recommended that debt service financing should be based on the productiveness of borrowed funds, monitored through debt repayment policies inserted into improving tax revenue and through improved debt service restructurings.