Effectiveness of The Budget Deficit Policy and Economic Growth Dynamics in Burundi

NIMPAGARITSE Valentin1, KOBOU Georges2, NIYONGABO Gilbert3, NDORICIMPA Arcade4, NIZIGIYIMANA Révérien5
12345Graduate School of The University of Burundi, Burundi
DOI – http://doi.org/10.37502/IJSMR.2025.8301

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Abstract

This study empirically analyzes the impact of the budget deficit policy on economic growth dynamics in Burundi over the period 1990-2022, by applying an autoregressive staggered lag (ARDL) model. The results show a good fit of the model with an R2 of 0.8898, indicating that 88.98% of the variation in GDP per capita is explained by the explanatory variables (trade openness rate, total population, money supply growth and budget deficit as a % of GDP). The analysis reveals the adjustment coefficient of -0.4946, suggesting that the Burundian economy converges to its long-term equilibrium at a speed of 49.46% per period after a shock. In the long run, the budget deficit has a positive and significant effect on economic growth (coefficient of 0.0066; p = 0.014), indicating that a 1% increase in the deficit leads to a 0.66% increase in GDP per capita. However, in the short term, its immediate effect is insignificant (D1. = -0.0022; p = 0.141), while a negative delayed impact is observed (LD. = -0.0031; p = 0.040), suggesting an unfavorable temporary effect. Finally, trade openness has a positive effect on GDP per capita growth in the long term, while Burundi’s total population has a negative impact. These results highlight the need for prudent management of the budget deficit to optimize its effects on economic growth dynamics in Burundi.

Keywords: Budget deficit, Economic growth, ARDL model, Burundi.

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