Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda

Author/Editor:

John W Clark JR ; Birgir Arnason

Publication Date:

March 31, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2014/051

Subject:

Commercial borrowing Consumption Expenditure External debt National accounts Private investment Public investment spending Taxes Value-added tax

English

Publication Date:

March 31, 2014

ISBN/ISSN:

9781475519143/1018-5941

Stock No:

WPIEA2014051

Pages:

23

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