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WP/042 On the Impact of External Debt and Aid on Public Expenditure Allocation in Sub-Saharan Africa after the Launch of the HIPC Initiative

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.
WIDER Working Paper
WP/042 On the Impact of External Debt and Aid on Public Expenditure Allocation in Sub-Saharan Africa after the Launch of the HIPC Initiative
Maria Quattri, and Augustin Kwasi Fosu
Publication date:
April 2012
ISBN 13 Web:
Copyright holder:
Copyright year:
SSA, HIPC, public expenditure allocation, external debt and aid
F34, F35, H51, H52, H54, 055
This working paper has been prepared within the UNU-WIDER project ‘Foreign Aid: Research and Communication (ReCom)’, directed by Tony Addison and Finn Tarp. UNU-WIDER gratefully acknowledges specific programme contributions from the governments of Denmark (Ministry of Foreign Affairs, Danida) and Sweden (Swedish International Development Cooperation Agency—Sida) for the Research and Communication (ReCom) programme. UNU-WIDER also acknowledges core financial support to UNU-WIDER’s work programme from the governments of Finland (Ministry for Foreign Affairs), the United Kingdom (Department for International Development), and the governments of Denmark and Sweden.
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