Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda

John Clark JR and Birgir Arnason

No 2014/051, IMF Working Papers from International Monetary Fund

Abstract: Rwanda is a unique case among its Sub-Saharan African peers in that it has already undergone a large scaling-up of public investment. The Rwandan government has made clear its desire to lower its reliance on foreign aid while still maintaining high public investment levels. We use the model of public investment, growth, and debt sustainability in Buffie et al. (2012) to evaluate the macroeconomic consequences of a possible scaling-down of investment in Rwanda. Using the model, we can gauge the consequences of different financing mechanisms and investment efficiency levels on the economy. We find that with some commercial borrowing and a modest tax adjustment, the authorities may be able to retain their high investment spending while still reducing their reliance on foreign aid.

Keywords: WP; poverty rate; Public Investment; Growth; Debt Sustainability; Low Income Countries; investment buildup; growth nexus; investment surge; investment adjustment; investment efficiency; Rwandan gross domestic product; Public investment spending; Commercial borrowing; Private investment; Value-added tax; Consumption; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 23
Date: 2014-03-31
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Citations: View citations in EconPapers (1)

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