Debt First, People Last? The Fiscal Crisis Weakening Africa’s Safety Nets

Governments across Africa routinely announce larger budgets for health, education and social protection. However, higher allocations do not automatically translate into fewer people living in poverty. A new study suggests the decisive factor is not simply how much governments spend, but whether their fiscal systems are strong enough to sustain that spending and convert it into effective public services.

The research, "Balanced Budget, Social Expenditure and Poverty Reduction: Comparative Evidence from Nigeria and the Horn of Africa," was published in the journal Economies. It was authored by Hope Agbonrofo, Azuka Elvis Ozegbe and Ogochukwu Chinelo Okanya, affiliated with Pan-Atlantic University and the Institute of Management and Technology in Nigeria.

Using annual data from 1993 to 2024, the authors compare Nigeria with Ethiopia, Somalia and Eritrea. They examine how poverty responds to debt service, public debt, fiscal balance and social expenditure, while also accounting for GDP per capita, inflation and exchange-rate movements. Rather than assuming that fiscal policy has the same effect in all circumstances, the study uses threshold-based models to distinguish between relatively stable fiscal periods and periods of stress.

The Real Contest Is Not Spending More, but Preserving Fiscal Space

The study challenges a common policy assumption, that increasing social expenditure is, by itself, evidence of a stronger poverty-reduction strategy. In practice, public money passes through a fiscal system before it reaches schools, clinics, cash-transfer recipients or vulnerable households. If that system is weakened by high debt-service costs, inflation, poor revenue mobilisation or administrative inefficiency, nominal spending can rise while real benefits stagnate.

The study finds that poverty remains persistent across all four countries, with shocks taking time to dissipate. Its error-correction results indicate gradual movement back toward long-run equilibrium, meaning that fiscal crises, programme disruptions and macroeconomic instability can have effects that continue well beyond the initial shock.

That matters because poverty is not merely a short-term income problem. When governments cut health coverage, delay social transfers or underfund education during a fiscal crisis, households may sell productive assets, withdraw children from school, postpone treatment or take on expensive debt. These responses can lock families into deeper vulnerability even after economic conditions improve.

The research thus reframes fiscal discipline. It is not simply about reducing deficits or satisfying numerical debt targets; its development value lies in protecting the government's capacity to finance essential services consistently. A country can run a tighter budget and still weaken poverty reduction if consolidation falls disproportionately on social programmes. Conversely, a temporary deficit may support welfare if it finances well-targeted interventions and remains compatible with future debt sustainability. The issue is not whether budgets are perfectly balanced in accounting terms, but whether public finances remain credible, resilient and capable of protecting vulnerable citizens.

Debt Turns Social Budgets into Fragile Promises

The study reports significant differences between Nigeria and the Horn of Africa. Nigeria appears comparatively better positioned to translate manageable fiscal space into welfare gains, although debt-service and debt-to-GDP pressures still undermine poverty reduction. In Ethiopia, Somalia and Eritrea, the adverse effects of high debt are stronger and more persistent, reflecting narrower fiscal space and greater institutional fragility.

The marginal-effects analysis is particularly revealing. In Nigeria, social spending continues to support poverty reduction when debt obligations remain moderate and predictable. In the Horn countries, elevated debt-to-GDP burdens weaken—and can reverse—the poverty-reducing impact of social expenditure.

The mechanism is not difficult to understand. Debt service competes directly with public investment and social protection. When interest and principal repayments absorb a growing share of revenue, ministries may receive less than their approved budgets. Programme coverage can shrink, supplier payments may be delayed and the quality of services may deteriorate.

High debt can also make social expenditure more volatile. Governments that depend heavily on short-term borrowing or uncertain external financing may expand programmes during favourable periods and cut them abruptly when financing conditions tighten, creating a damaging cycle: poverty increases during crises, precisely when governments have the least fiscal room to respond.

For international financial institutions, the implication is that debt sustainability assessments should pay closer attention to social expenditure quality and continuity. A fiscal adjustment programme may improve headline balances while producing longer-term development costs if it undermines health, education or basic income security.

For governments, the lesson is that borrowing should be assessed not only by its quantity but also by its purpose, maturity, cost and capacity to generate future revenue or productivity. Debt used to finance productive infrastructure and human capital may strengthen future fiscal capacity. Expensive borrowing used to cover recurring inefficiencies can gradually destroy it.

Social Spending Cuts Hurt Faster Than Increases Can Heal

The study reveals that fiscal changes are asymmetric: increases and reductions in social spending do not produce equal and opposite effects. The nonlinear analysis indicates that positive changes in social expenditure improve poverty outcomes, while cuts significantly worsen them. Rising debt-service obligations also reduce the effectiveness of social programmes. The study's robustness models explain between 73.6% and 78.2% of the variation in poverty and pass the authors' reported tests for normality, serial correlation, model specification and heteroskedasticity.

The asymmetry has major implications for budget design. Cutting a cash-transfer scheme, food programme or health subsidy during a crisis may push households into hardship immediately. Restoring the same amount later may not fully reverse the damage, especially if children have left school, businesses have collapsed or preventable illness has reduced household earnings. This means social expenditure should not be treated as an easily adjustable residual after debt payments, wages and administrative costs are covered. Core programmes need stronger protection across the economic cycle.

The study's structural-break analysis reinforces this point. It identifies more favourable poverty outcomes around periods associated with fiscal reforms and supportive social policies, notably 2007 and 2020, and weaker outcomes during periods of stress such as 2015 and 2022. The authors link Nigeria's 2015 deterioration to the oil-price shock and fiscal tightening, while the 2022 break reflects post-crisis exhaustion and rising debt pressure across the sample.

The 2020 findings also require careful interpretation. Crisis-related fiscal expansion temporarily strengthened the role of social spending, but emergency expenditure is not the same as durable institutional capacity. Temporary relief can prevent hardship, yet lasting poverty reduction requires stable delivery systems, reliable beneficiary data and sustainable financing.

Policy Must Protect Outcomes, Not Just Balance Sheets

The research points toward a more integrated fiscal strategy. Governments should strengthen domestic revenue mobilisation, debt management, fiscal transparency and expenditure monitoring while protecting high-impact investments in health, education and social protection. The study specifically recommends improving targeting and institutional capacity so that resources reach intended beneficiaries and generate measurable welfare gains.

Nigeria's priority should be to contain debt pressures while raising the efficiency of existing programmes. The country's scale and revenue potential offer greater room for reform, but oil dependence, inflation and implementation weaknesses continue to reduce policy effectiveness.

The Horn of Africa faces a more difficult combination of limited revenue, conflict exposure, climate vulnerability and institutional fragility. There, concessional finance and grant support may be necessary to preserve essential social expenditure without intensifying debt distress. Yet external funding should reinforce domestic systems rather than create fragmented, donor-dependent programmes.

Civil society also has a central role. Public debate often focuses on how much money is allocated, but less attention is paid to whether funds are released, spent on time and converted into services. Budget transparency, independent audits and beneficiary-level monitoring can help close that gap.

The study has limitations. Annual national samples are relatively small, the Horn analysis covers only three countries, and national averages conceal large subnational differences. The models identify associations and dynamic relationships but cannot establish definitive causality. Governance and institutional quality are central to the paper's interpretation, yet they are not fully incorporated as direct explanatory variables.

The authors call for research using post-2024 data, sector-specific spending on health, education and cash transfers, subnational evidence and models that explicitly incorporate climate events, commodity shocks and conflict.