Post-HIPC growth dynamics in Sub-Saharan Africa

Access to debt relief under the Highly Indebted Poor Country Initiative enhanced the growth performance across Sub-Saharan Africa, especially in the subset of debt-ridden low-income countries. Over the past few years, these Completion Point countries have enjoyed significantly higher investments and growth rates, primarily fueled by the expanding fiscal space of the post-Highly Indebted Poor Country Initiative era. 

They are also weathering the adverse effects of the global crisis much better than their non-Highly Indebted Poor Country Initiative counterparts. Despite these growth rebounds, the region is not likely to meet the Millennium Development Goals, however. Long-term growth projections from a simple macroeconomic model, which is applied to Ethiopia, suggest that prospects for reversing the widening income gaps with other regions of the developing world are limited. Under the baseline scenario, assuming current growth trends, the estimates show that it could take more than five decades for per capita real income to double in Ethiopia. 

However, even these gloomy prospects are likely to be undermined by the looming risk of another sovereign debt crisis. In effect, the experiments show that lowering interest rates on external debt would not bridge the widening income gap with other regions of the world, unless it is accompanied by a rapid expansion of capital accumulation financed by sustained inflows of foreign aid.

World Bank.Author: Bayraktar, Nihal ; Fofack, Hippolyte.Document Date: 2011/12/01. Document Type: Policy Research Working Paper.Report Number: WPS5924

Post-HIPC growth dynamics in Sub-Saharan Africa

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European Union. An agenda for growth

Package of economic and budgetary recommendations sets priorities for 2012 and includes new measures to reinforce eurozone financial governance and stability. Governments need to put public finances in order and make structural reforms to boost growth and jobs, says the Commission in its 2012 growth survey .

The survey marks the start of the second “European semester”, an annual 6-month cycle during which governments benefit from the input of their EU peers as they formulate national budgetary and economic policies.

It calls on governments to focus on 5 priorities and related measures. These include:

• implementing growth-friendly budget policies – tailor public investment and tax approaches to each country’s needs

• restoring loan activity to pre-crisis levels – ease banks’ access to funding, support SME's access to finance and develop a new European venture capital regime

• promoting growth and competitiveness – focus on the digital economy, the common market for services and external trade, fast-track related EU proposals

• tackling unemployment and the social effects of the crisis – promote business creation and self employment, improve welfare systems to take care of the most vulnerable

• modernising public administrations – reduce red tape, promote e-government, and cut the start-up time for new businesses to 3 days

Stronger economic governance

This year’s package includes 2 new proposals that build on measures taken in the wake of the financial crisis to improve economic governance and help control public debt.

One proposal  would require eurozone countries to present their draft budgets at the same time each year. The Commission could then issue an opinion on them, if necessary, and ask governments to revise them in line with their eurozone obligations.

The second  would enhance surveillance for eurozone countries being supported by financial assistance or that are threatened by serious financial instability.

Reinforcing financial support

The Commission is also launching a public consultation (deadline 8 January 2012) on whether the eurozone should be able to collectively issue bonds to raise money for countries with debt problems. The revenue would bolster the eurozone’s bailout fund.

A discussion paper  presents options for launching such “stability bonds”. Any move toward jointly issued bonds would only be feasible if the eurozone also took measures to reinforce budgetary discipline, says the Commission.

More on the 2012 growth survey and related proposals

2012 Growth Survey