Electoral Cycle and Sovereign Borrowing: Evidence from Africa

• In Event: Sovereign Debt Dynamics: Regime Survival, Accountability, and Negotiations

Abstract

Past three decades in Africa feature a significantly increasing number of elections as well as mounting debts. How do electoral incentives shape leaders’ borrowing decisions as Africa continues to democratizes? The literature on political business cycles implies that we should expect a rise in sovereign borrowing prior to elections in response to deepened fiscal deficits, especially in countries with few executive constraints and competitive elections. Previous studies show mixed empirical results. Scholarship in African studies provide evidence on the electoral cycles in redistribution. Yet we know little about how governments’ financing behaviors evolve around elections. This paper argues that impending elections alter the comparative salience of political versus financial advantages of different financing tools. As a result, leaders are more likely to resort to channels with more political
gains at the expense of financial burdens before elections. The trade-off is more noticeable in the context of modern Africa as political debates move away from ethnic contentions to discussion on redistribution with a weak tax base. Empirical evidence from annual debt composition and monthly bond issuance data supports the hypothesis by showing that before elections leaders are more likely to increase public spending and borrow from private creditors who provide more policy flexibility but less favorable financial
terms. The maturity of bonds issued before elections also tend to be shorter. Findings from this paper bear important implications for understanding the nuanced relationship between elections and sovereign financing behaviors. Results from this project also contribute to the understanding of domestic explanations for debt accumulation in Africa and hope to shed some light on the ongoing debt crisis on the continent.

Author

• Mengfan Cheng, New York University