Clustering the Impact: How Economic Realities and Political Institutions shaped COVID-19 Fiscal Responses in Africa

The COVID-19 pandemic brought about unparalleled global challenges. While these challenges were similar across countries, they triggered diverse fiscal responses from governments worldwide. The objective of this study is to analyze the fiscal response of African countries to the COVID-19 crisis with an emphasis on how their responses varied based on their economic situations and political institutions before the start of the pandemic.

This research leverages a dataset of political and economic indicators before the pandemic (2019) and the total amount of fiscal response during the pandemic (2020-2021) for all countries in Africa. As a preliminary step, OLS regressions were conducted to determine the most influential political and economic factors affecting fiscal response during the pandemic. These factors were then used in a K-means clustering approach to categorize African countries based on similar economic and political profiles. Upon the completion of the clustering, subsequent Kruskal Wallis and Dunn’s tests were conducted to evaluate the significance of the clusters on their diverse fiscal response.

Country clusters were determined using estimates of current account balance, government effectiveness, and political stability, controlled for the total number of reported COVID-19 cases. Results indicate that countries within the same cluster exhibit commonalities in their fiscal response and their economic and political profiles. Moreover, subsequent test results highlight the significance of these clusters, showing that economic context and political institutions influenced a country’s approach to COVID-19.

This study’s outcome offers valuable insights for policymakers and other stakeholders about the implications of economic contexts and political institutions on the fiscal response to an external shock such as COVID-19. Moreover, the segmentation of the countries in Africa provides a nuanced understanding of the diverse needs within the continent and the need for targeted policy interventions when dealing with external shocks.