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The implications of climate change and extreme weather events for fiscal balance and fiscal policy in Africa

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Abstract

African countries quite often experience weather-related events as a result of climate variabilities. In this study, we investigate the effects of climate change and the incidence of extreme weather events on fiscal balance and the broad implications for fiscal policy formulation in Africa. We employ the system GMM, fixed-effects and random-effects estimation strategies over the period 1990–2017. We find that increases in temperature change anomaly which implies a warmer climate in a meteorological year worsens fiscal balance in Africa. Our findings also reveal that weather-related events may have a significant impact on fiscal balance, if the damage caused is large and consequential. Furthermore, African countries with relatively strong institutions and adaptive capacities tend to modulate the impact of temperature change anomaly and extreme weather events on fiscal balance. We forecast that the frequent incidence of climatic disruptions and extreme weather events which are considered as external shocks may toughen the fiscal consolidation efforts and debt sustainability measures of some African governments.

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Source: Authors construct from IMF data (2019)

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Funding

No Funding was received to assist with the preparation of this manuscript.

Author information

Authors and Affiliations

  1. Department of Banking and Finance, University of Professional Studies, Accra, P.O. Box LG 149, Legon, Ghana

    Mark Edem Kunawotor

  2. University of Ghana Business School, Accra, Ghana

    Mark Edem Kunawotor, Godfred Alufar Bokpin & Patrick O. Asuming

  3. School of Business, North Carolina Central University, Durham, USA

    Kofi A. Amoateng

Authors
  1. Mark Edem Kunawotor
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  2. Godfred Alufar Bokpin
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  3. Patrick O. Asuming
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  4. Kofi A. Amoateng
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Correspondence to Mark Edem Kunawotor.

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Appendices

Appendix 1: Robustness checks for main results using fixed effects (FE) and random effects (RE)

Variables

Model 13

Model 14

Model 15

Model 16

Model 17

RE

FE

RE

FE

FE

Weather Event 2

  

− 0.443**

− 0.384*

− 1.133**

  

(0.219)

(0.212)

(0.423)

Temperature change

− 1.654***

− 1.682***

   

(0.441)

(0.461)

   

Institutions

    

0.430

    

(1.832)

Weather Event 2—institutions

    

− 1.222*

    

(0.683)

Conflict

− 0.406

− 0.861

0.0893

− 0.133

− 0.255

(0.541)

(0.743)

(0.536)

(0.700)

(0.833)

Elections

− 0.672*

− 0.617*

− 0.744**

− 0.718**

− 0.689

(0.359)

(0.360)

(0.326)

(0.327)

(0.437)

Inflation

− 0.0595***

− 0.0685***

− 0.0493***

− 0.0582***

− 0.0629**

(0.0207)

(0.0233)

(0.0178)

(0.0198)

(0.0304)

GDP growth rate

0.227***

0.221***

0.229***

0.220***

0.224**

(0.0638)

(0.0653)

(0.0555)

(0.0572)

(0.0815)

Unemployment

0.0960**

0.140*

0.0981***

0.114

0.169*

(0.0389)

(0.0762)

(0.0355)

(0.0772)

(0.0944)

Lag of interest rate

0.00314

0.00177

− 0.00462

− 0.00897

− 0.0167

(0.0253)

(0.0267)

(0.0252)

(0.0267)

(0.0336)

Lag of debt ratio

0.0108***

0.0118***

0.0115***

0.0132***

0.0147***

(0.00338)

(0.00360)

(0.00371)

(0.00394)

(0.00384)

Constant

− 1.985***

− 2.450***

− 3.387***

− 3.528***

− 3.824***

(0.641)

(0.864)

(0.522)

(0.576)

(1.161)

Observations

492

492

567

567

448

R-squared

0.1163

0.118

0.0958

0.097

0.110

Number of countries

27

27

30

30

30

Prob > chi2/ Prob > F

0.0000

0.0000

0.0000

0.0000

0.0000

  1. Robust standard errors in parentheses ***p < 0.01, **p < 0.05, *p < 0.1 Model 13 and Model 14 show the effects of temperature change on fiscal balance using random effects and fixed effects, respectively. Model 15 and Model 16 show the effect of Weather Event 2 on fiscal balance using random effects and fixed effects, respectively. Model 17 shows the effects of the interaction of Weather Event 2 and Institutions on fiscal balance.

Appendix 2: List of countries used in the study

1. Algeria

2. Angola

3. Benin

4. Botswana

5. Burkina Faso

6. Burundi

7. Cabo Verde

8. Cameroon

9. CAR

10. Chad

11. Comoros

12. DRC

13. Congo Republic

14. Côte D'Ivoire

15. Djibouti

16. Egypt

17. Equatorial Guinea

18. Eritrea

19. Eswatini

20. Ethiopia

21. Gabon

22. Gambia

23. Ghana

24. Guinea

25. Guinea Bissau

26. Kenya

27. Lesotho

28. Liberia

29. Libya

30. Madagascar

31. Malawi

32. Mali

33. Mauritania

34. Mauritius

35. Morocco

36. Mozambique

37. Namibia

38. Niger

39. Nigeria

40. Rwanda

41. Sao Tome and Principe

 

42. Senegal

43. Seychelle

44. Sierra Leone

45 South Africa

46. Sudan

47. Tanzania

48. Togo

49. Tunisia

50. Uganda

51. Zambia

52. Zimbabwe

 

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Kunawotor, M.E., Bokpin, G.A., Asuming, P.O. et al. The implications of climate change and extreme weather events for fiscal balance and fiscal policy in Africa. J. Soc. Econ. Dev. 24, 470–492 (2022). https://doi.org/10.1007/s40847-022-00180-6

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