“This paper discusses various aspects of the problems African governments face in financing their generally large budgetary deficits. Its primary objective is to focus on the main methods of financing which are realistically available given the generally thin financial markets in Africa, and to identify the reasons why each of these methods imposes clear limits on how much funding a government can raise without imposing on high costs on it’s country’s economic progress. Section 1 briefly describes the trends and prevailing magnitudes of fiscal deficits in Africa, and provides some discussion of the main components of these deficits and the ways in which they relate to Africa’s external debt problem. This discussion is supported by brief descriptions of the situation in selected African countries for which appropriate data are available. Section 2 attemps to describe the main financing mechanisms which are realistically available to the typical African governments. Section 3 utilizes some relatively simple theory to show in more detail why there are limits on each of the main methods of budgetary finance, namely domestic borrowing, external borrowing and inflationary finance. Section 4 and 5 look at 2 issues which currently impinge very severely on the fiscal and deficit financing problems of many African countries.”
