Sources and Impact of Government Budget Deficits on The Economy of Sudan 1970-2006

Abstract

The research attempts to examine the sources of government budget deficits and its impact on the economy of Sudan during the period (1970-2006). For the purpose of comparison, the above period is divided in two sub-period. The first period extend from (1970-1989) while the second period cover the period from (1990-2006). The framework and concepts of government expenditures , taxation and budgeting is reviewed. The study also, sheds lights on the main development of the strategies and macroeconomic policies of Sudan; specifically the fiscal policy implementation and budgeting practices. Descriptive analysis of government revenues and expenditures in relation to government budget deficits is supported by employing an econometric model based on Eviews software program. The stationary of the data are tested, by using Augmented Dickey- Fuller (ADF) Test, the model is estimated, based on linear and non-linear regression analysis to estimate the interrelationship between these variables. The descriptive and analytical results shows, almost identical results. During the first sub-period which extended from (1970-1989), government revenues, appeared to be the main detrimental factor, which show significant impact on budget deficits, and foreign borrowing is the main source of financing the deficits, which resulted in accumulation of public debt and its services. In the second sub-period (1990-2006) total government expenditures is the most detrimental variable, more specifically current expenditure has significant impact on budget deficits, and bonds financing is the main source of financing the government budget deficits. The government budget deficits had indirect effects on the selected macroeconomic variables. Thus, during the first sub-period (1970-1989) budget deficits are positively related to exchange rate; while during the second sub-period (1990-2006) budget deficits had positive impact on GDP growth.