Dynamic Analysis of Public Expenditures and Inflation in Burundi

Mathieu MVUYEKURE1, Frederic NIMUBONA2 & SAMBA Diop3
1University of Burundi, Bujumbura, Burundi
2 University of Burundi, Bujumbura, Burundi
3Alioune Diop University, Bambey, Senegal
DOI – http://doi.org/10.37502/IJSMR.2025.81214

Abstract

This study examines the causal relationship between public expenditure and inflation in Burundi. Monetarist theory suggests that increased public spending can raise the money supply, potentially leading to inflation. In response, authorities may boost social spending and transfers to maintain household purchasing power and social stability, especially in developing countries with fragile safety nets. Data for this analysis were obtained from the World Bank’s” World Development Indicators” and the Central Bank of Burundi, utilizing time series data and the Autoregressive Distributed Lag (ARDL) model. The empirical results show that, in the short term, government consumption and investment expenditures decrease inflation. In the long term, government investment expenditures also reduce inflation, while government consumption expenditures tend to increase it. The findings indicate a unidirectional causal relationship where rising inflation drives government investment expenditures, as per the Toda Yamamoto approach. This study suggests that the Government of Burundi should prioritize investment expenditures over consumption expenditures and closely monitor public spending’s effects on inflation, conducting regular assessments to adapt policies as needed.

Keywords: Public expenditure, inflation, ARDL model, transmission dynamics, Burundi

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