Walking a Fine Line: Public Investment Scaling-Up and Debt Sustainability in Burkina Faso

By Malangu Kabedi-Mbuyi, Mame Astou Diouf, Constant A Lonkeng Ngouana

April 11, 2016

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Malangu Kabedi-Mbuyi, Mame Astou Diouf, and Constant A Lonkeng Ngouana. Walking a Fine Line: Public Investment Scaling-Up and Debt Sustainability in Burkina Faso, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyzes the macroeconomics of scaling up public investment in Burkina Faso under alternative financing options, including through foreign aid and a combination of tax adjustment and borrowing. Our findings are twofold: (1) raising official development assistance in line with the Gleneagles agreement provides scope for financing public investment at low cost and would have positive, but somewhat moderate, effects on aggregate output—the growth dividends in the nontradables sector would be partially offset by the Dutch disease in the tradables sector; and (2) the massive investment scaling-up contemplated under Burkina Faso’s “accelerated growth” strategy, while boosting medium- and long-term growth, would lead to unsustainable debt dynamics under a plausible tax adjustment and realistic concessional financing. A more gradual approach to closing Burkina Faso’s infrastructure gap is therefore desirable because it would take into account the needed time for the country to address its capacity constraints and to further improve investment efficiency.

Subject: Debt sustainability, Expenditure, External debt, Fiscal consolidation, Fiscal policy, Public debt, Public investment and public-private partnerships (PPP), Public investment spending

Keywords: Adjustment cost, Contemplated investment plan, Debt sustainability, DP, DPPP, Financing, Firm, Fiscal consolidation, Global, Goods, Goods sector, Investment, Investment financing, Investment inefficiency, Investment program, Investment scaling-up, Long-term debt, Open economy, Public investment and public-private partnerships (PPP), Public investment spending, Scaled-up investment, Scaling-up plan, Sub-Saharan Africa

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Departmental Paper No. 2016/006
Stock No:

WFLPISEA
ISBN:

9781498358538
ISSN:

2616-5333

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