Working Paper 365 - Public Investment Efficiency, Economic Growth and Debt Sustainability in Africa

George Kararach (), Jacob Oduor (), Edward Sennoga (), Walter Odero (), Peter Rasmussen () and Lacina Balma ()
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George Kararach: African Development Bank, https://www.afdb.org/en
Jacob Oduor: African Development Bank, https://www.afdb.org/en
Edward Sennoga: African Development Bank, https://www.afdb.org/en
Walter Odero: African Development Bank, https://www.afdb.org/en
Peter Rasmussen: African Development Bank, https://www.afdb.org/en
Lacina Balma: African Development Bank, https://www.afdb.org/en

Working Paper Series from African Development Bank

Abstract: Investment is an important driver of economic growth with important implications for debt sustainability. Investment efficiency gaps adversely impact debt sustainability in Africa. The current heightened fiscal vulnerabilities can be attributed to external factors including volatile commodity prices particularly for commodity-exporting countries and health challenges like COVID-19 pandemic that weakened fiscal revenues and growth. In addition are domestic factors such as elevated government spending on the back of big-push investment expenditures to close infrastructure gap, increased security expenditures in response to conflict and social unrest in some countries. Using a dynamic stochastic general equilibrium (DSGE) framework, we estimate the role of debt in the provision of productive investments, driving economic growth and subsequent debt sustainability. To entrench fiscal sustainability, countries need to strengthen domestic resource mobilization and improve public investment management for greater efficiency. Measures to increase tax revenue collections, savings mobilization and efficiency of public spending are therefore critical. It is prudent for development partners to support debt reporting, data harmonisation, tax compliance, combating illicit financial flows and developing effective debt resolution frameworks.

Keywords: Public investment, economic growth, debt sustainability, dynamic stochastic general equilibrium, Africa development1George Kararach is a Lead Economist, African Development Bank (a.kararach@afdb.org)& Visiting Professor, Wits School of Governance, university of Witwatersrand, South Africa; Jacob Oduor is a Chief Country Economist, African Development Bank (j.oduor@afdb.org); Edward Sennoga is a Lead Economist, African Development Bank (e.sennoga@afdb.org); Walter Oderois a Principal Country Economist, African Development Bank(w.odero@afdb.org); Peter Rasmussen is a Principal Country Economist, African Development Bank (p.rasmussen@afdb.org); Lacina Balma is a Senior Research Economist, African Development Bank (l.balma@afdb.org).The views expressed here are those of the authors and do not represent the official policy of the Africa DevelopmentBankand the University of the Witwatersrand, Johannesburg, South Africa JEL classification: E6, H63, H4, O11 (search for similar items in EconPapers)
Date: 2022-07-08
New Economics Papers: this item is included in nep-afr, nep-dge and nep-fdg
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