The effect of budget deficit on economic development in east African countries

Abstract

The study sought to establish the effect of budget deficit on economic development in East African Countries. The factors identified in the study are budget deficit rate, interest rate, inflation rate and foreign exchange. The theories that were guiding this study are Keynesian, Linear Stages of Growth, International Dependence theory and Neoclassical Counter- Revolution theory. The reason behind conducting this study was the growth of economy at a decreasing rate. The study used quantitative data in form of secondary data from Tanzania, Kenya, Uganda, Rwanda and Burundi for a ten year period from 2004 to 2013. All the data was expressed in terms of percentages and correlation design was considered appropriate as it enables the establishment of the relationship among the variables. The effect of budget deficit on economic development has been conducted in many countries in the world but few in East Africa. The multi variety linear regression was conducted for the countries and the findings was positive relationship in all countries. From the findings, the researcher concluded that the effect of budget deficit on economic development depends on how the funds financing the deficit used, if it was used for development purposes then it would have a positive one but if it is for meeting the recurrent expenditures then there would be a negative relationship between the two. The study recommends that Tanzania, Kenya, Uganda, Burundi and Rwanda should broaden and manage efficiently the tax base in order to finance their expenditure adequately and help increase the multiplier that further generate output hence economic growth. The study also recommends that East African countries should create more revenue sources to increase the income to reduce dependence on developed countries and also to create conducive environment for more opportunities.