Does financial sector transparencies tame government debts in Africa: exploring for complementarities and nonlinear threshold effects

Abstract

Despite evidence that improving financial sector transparency (FST) can help tame clientele (households, businesses and corporate) debts, the empirical literature fails to explore how improving FST can lower/tame the unsustainable soaring government or (regulator) debts, particularly in Africa where alternative government debt management is inevitable. Hence, this study examines the complementarity and nonlinear threshold effects of private and public sector-led financial transparencies on government debts in Africa for the first time. Using a dynamic GMM panel data strategy covering periods between 2004 and 2020, the results show that the joint term of public and private sector-led financial sector transparency has complementary-synergetic effects on long-term debts and interest on debts while having substitutive effects on gross and short-term government debts, implying that private and public sector-led financial transparencies are substitutes to each other or can be used to complement gross and short-term government debts but complementary on long-term debt and interest on debts. Similarly, it is reported that there is a nonlinear inverted U-shaped threshold effect of financial sector transparencies on government debts, implying that financial sector transparencies must reach a minimum threshold/level to induce the desirable reducing effect of financial sector transparencies on government debts in Africa. These results create awareness of how financial regulators can employ FST as a debt-reducing tool and require policymakers to expand and deepen FST information to hasten it and reinforce the reducing effect of financial sector transparencies on government debts.

Impact statement

This study provides novel evidence on how transparency in the financial market can serve a tool for taming governments debts when is it well-developed to certain levels/thresholds. Especially in the context of Africa where governments debts have reached unsustainable thresholds and both country and international level financial bodies are seeking to have alternative mechanisms for lowering government debts, this study employs data on 23 African countries between the periods of 2004 and 2020 to show that (i) while the two forms of financial sector transparencies have substitutive effect on government debt, it could have either complementary or substitutive effect depending on the type of government debt (short-term, long-term, privately and publicly guaranteed debts), (ii) the reducing effect of financial sector transparency can only be attained when financial sector transparency is well-developed over a certain threshold. Hence, the impact of this study is its novel revelation that regulators can rely on improved financial sector transparency to lower government debts, particularly in Africa.

Keywords:

• Debts
• revenue
• transparency
• Africa

REVIEWING EDITOR:

• Goodness Aye, University of Agriculture, Makurdi Benue State, Nigeria

SUBJECTS:

• Economics
• Finance
• Political Economy

Author contributions statement

Baah Aye Kusi was involved in the conceptionalization and designing, analysis and interpretation of the data. He was also involved the drafting of the paper, revising the manuscript critically for intellectual content and the final approval of the version to be published. Edward Daniels was also involved in the drafting of the paper and revising of the manuscript critically for intellectual content. Blessing Akrumah was involved in the conceptionalization, writing and designing of the manuscript. Authors have agreed to be accountable for all aspects of the manuscript submitted.

Availability of data and materials

Data will be made available on request.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://openknowledge.worldbank.org/server/api/core/bitstreams/2d6b3d72-a763-5db8-bd8b-209a6a7fb384/content"International Debt Statistics 2022 (worldbank.org)(doi:10.1596/978-1-4648-1800-4).

2 https://www.imf.org/-/media/Files/Publications/PP/2020/English/PPEA2020003.ashx

Additional information

Notes on contributors

Blessing Akrumah

Blessing Akrumah is a Master of Philosophy student at University of Educations. She currently holds a BBA degree in Banking and Finance. She is a private business woman who is interested in researching and teaching in Finance, Banking and Economics.

Edward Daniels

Edward Daniels is faculty member at the School of Business at the University of Education Winneba, Ghana. He currently doubles as a finance lecturer at the Department of Applied Finance and Policy Management. His previous research has looked at various themes including; Banking Supervision and Non-performing loans; political business cycles and economic growth amongst others. His academic and research area of interest includes; Political Business Cycles, International Finance & Risk, Corporate Finance & Banking Operations, and Investment & Portfolio Management.

Baah Aye Kusi

Baah Aye Kusi holds Doctor and Master of Philosophy degrees in Finance and obtained from University of Ghana. He is also a Chartered Financial Economist of the Association of Certified Chartered Economists (ACCE) and a senior lecturer at University of Ghana Business School, Ghana. Baah has over eleven years of experience in teaching and researching in finance, banking, insurance and economics at University of Education, Central University, Ghana Institute of Journalism, University of Ghana, Valley View University, Almond Institute (now Accra Business School), and Blue Crest University College.