Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda
IMF Working Papers, March 31, 2014
Source details
- Canonical URL
- Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda
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Bibliographic details
- Authors: John W Clark JR, Birgir Arnason
- Published: March 31, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475519143.001
Summary
- Rwanda has already undergone a large scaling-up of public investment relative to its Sub-Saharan African peers.
- The Rwandan government seeks to lower reliance on foreign aid while maintaining high public investment levels.
- Using the model of public investment, growth, and debt sustainability in Buffie et al. (2012), the study evaluates macroeconomic consequences of a possible scaling-down of investment in Rwanda.
- The analysis gauges consequences of different financing mechanisms and investment efficiency levels on the economy.
- Key conclusion: with some commercial borrowing and a modest tax adjustment, the authorities may be able to retain high investment spending while reducing reliance on foreign aid.
Model and Scenarios
- Model used: public investment, growth, and debt sustainability framework from Buffie et al. (2012).
- Scenarios considered include variations in:
- Financing mechanisms (including commercial borrowing).
- Investment efficiency levels.
- Tax policy adjustments (modest tax adjustment cited).
Key Findings
- Commercial borrowing combined with modest tax adjustments can allow Rwanda to:
- Retain high public investment spending.
- Reduce reliance on foreign aid.
- The model permits evaluation of macroeconomic outcomes under different:
- Financing mixes.
- Investment efficiency assumptions.
- The study emphasizes the interaction between investment buildup, growth, and external debt dynamics.
Policy Recommendations
- Consider measured commercial borrowing as part of a financing mix to sustain investment.
- Implement modest tax adjustments to preserve fiscal sustainability while sustaining investment levels.
- Monitor and seek to improve investment efficiency to enhance growth payoffs and debt sustainability.
Keywords and Subjects (as listed)
- Subjects: Commercial borrowing, Consumption, Expenditure, External debt, National accounts, Private investment, Public investment spending, Taxes, Value-added tax
- Keywords: Commercial borrowing, Consumption, Debt Sustainability, Growth, growth nexus, investment adjustment, investment buildup, investment efficiency, investment surge, Low Income Countries, poverty rate, Private investment, Public Investment, Public investment spending, Rwandan gross domestic product, Sub-Saharan Africa, Value-added tax, WP
John W Clark JR, and Birgir Arnason. "Surging Investment and Declining Aid: Evaluating Debt Sustainability in Rwanda", IMF Working Papers 2014, 051 (2014), accessed 9/18/2026, https://doi.org/10.5089/9781475519143.001
Content in this bundle
- _wp1451 — Section 1–3