Can the public debt of African countries be mitigated by migrant remittances?

Abstract

<title>Abstract</title> The aim of this article is to study the effect of migrant remittances (RFM) on the public debt of a sample of 48 African countries over the period 1990-2020. To achieve this, we specify a panel model that we estimate using the generalized method of moments. The results show that migrant remittances reduce public debt in Africa in such a way that a 1% increase in the level of RFM would allow a 0.015% reduction in the level of public debt of African countries. Indeed, RFM can reduce public debt levels by broadening the country's tax base, by increasing foreign exchange earnings and by misaligning the exchange rate, depending on whether or not the country's currency is pegged to a foreign currency. We recommend that decision-makers set up incentives for formal remittances via digital channels, in particular by simplifying costs and procedures, and pursue policies aimed at better inclusion of the diaspora in the realization of major development projects in Africa, with a focus of RFM on productive investments which, combined with local development policies, will in the long term make it possible to have an independent national currency.