Striking an Appropriate Balance Among Public Investment, Growth, and Debt Sustainability in Cape Verde
AbstractDespite relatively fast economic growth over the past few years, Cape Verdeâ€™s public debt to GDP ratio has risenrapidly. Achieving an appropriate balance among public investment, growth, and debt sustainability has become a priority for the Cape Verdean authorities. The IMF-World Bank debt sustainability analysis (DSA) framework has helped the authorities monitor the risks of debt stress. However, the DSA has a number of limitations. This paper intends to complement the DSA by addressing aspects currently not covered by the DSA. The paper evaluates public investment scaling-up strategies in Cape Verde by customizing the Buffie and others (2012) model for Cape Verde and conducting various scenario and sensitivity analysis. The paper assesses Cape Verdeâ€™s public debt risks, taking into account the link between public investment and growth. The paper concludes that the size of scaling-up and aspects of the economic structure have significant impact on the outcome of the public investment. A very large surge in public investment may lead to a debt to GDP ratio that reaches dangerous levels based on the usual DSA criteria. A more moderate scaling-up of public investment may contribute better to stable and sustained growth over the medium and long run. In addition, it is critical that the authorities ensure the quality of public investment.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/280.
Date of creation: 30 Nov 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
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- Andrew Berg & Rafael Portillo & Edward F. Buffie & Catherine A. Pattillo & Luis-Felipe Zanna, 2012. "Public Investment, Growth, and Debt Sustainability: Putting Together the Pieces," IMF Working Papers 12/144, International Monetary Fund.
- Charles Wyplosz, 2007. "Debt Sustainability Assessment: The IMF Approach and Alternatives," IHEID Working Papers 03-2007, Economics Section, The Graduate Institute of International Studies.
- Jeffrey D. Sachs, 2002. "Resolving the Debt Crisis of Low-Income Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 257-286.
- Antonio David & Luis-Felipe Zanna & Raphael A. Espinoza & Michal Andrle & Marshall Mills, 2012. "As You Sow So Shall You Reap: Public Investment Surges, Growth, and Debt Sustainability in Togo," IMF Working Papers 12/127, International Monetary Fund.
- Peter Hjertholm, 2003. "Theoretical and empirical foundations of HIPC debt sustainability targets," The Journal of Development Studies, Taylor and Francis Journals, vol. 39(6), pages 67-100.
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