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On the Impact of External Debt and Aid on Public Expenditure Allocation in Sub-Saharan Africa after the Launch of the HIPC Initiative

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  • Quattri, Maria
  • Fosu, Augustin Kwasi

Abstract

In the wake of the current financial and economic crises, the economies of sub-Saharan Africa find themselves squeezed between likely reductions in official development assistance and the pressing challenge to eradicate poverty. Public expenditure allocation to the social sector and to public investment is constrained by the need to pursue fiscal discipline in order to avert debt distress. Within a framework of public expenditure choice, the paper investigates the impact of the external debt-servicing constraint, as well as external aid, on government expenditure allocation in sub-Saharan Africa countries after the launch of the Heavily Indebted Poor Countries Initiative. Among the findings are: (i) the debt effect, while substantially lower than existing estimates for the pre-HIPC period, remains negative for the social sector, with education expenditure funding gaps, suggesting that appropriate measures must be undertaken in order to prevent the deleterious effects of debt, particularly on the social sector. Meanwhile, the additional finding that government effectiveness favours public investment as well as spending in the social sector suggests that increased attention on governance is called for.

Suggested Citation

  • Quattri, Maria & Fosu, Augustin Kwasi, 2012. "On the Impact of External Debt and Aid on Public Expenditure Allocation in Sub-Saharan Africa after the Launch of the HIPC Initiative," WIDER Working Paper Series 042, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2012-042
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    References listed on IDEAS

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    Cited by:

    1. Ibrahim Mohammed Adamu, 2016. "Public Investment in Nigeria. Does External Debt Matter?," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(4), pages 120-138, December.

    More about this item

    Keywords

    Debts; Public; Economic assistance and foreign aid; Fiscal policy; Government spending policy; Public investments;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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