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In the coming years, over a dozen middle-income countries (MICs) are likely to transition from multilateral concessional assistance, including assistance from the International Development Association (IDA) and Gavi, the Vaccine Alliance (Gavi). The cohort of upcoming graduates, which includes Nigeria and Pakistan, may find the transition more challenging when compared with the experiences of previous countries that have already graduated. Many upcoming graduates, for example, still have high rates of child and maternal mortality and large proportions of the population living in poverty.
Is the upcoming cohort more vulnerable and less “ready” to transition than those countries that previously graduated? If it is, do multilateral agencies need to adjust their transition policies? To help answer these questions, in this working paper we compared two cohorts of countries: a “previous cohort” that graduated from IDA between 2010 and 2015, and an “upcoming cohort” that is anticipated to graduate from IDA, Gavi, or both in coming years. We compared the two cohorts across five categories of indicators: macroeconomic conditions, health financing, health performance, governance, and overall levels of poverty and inequality.
Overall, our findings suggest that, on average, the countries that graduated from IDA in the previous 2010-15 period had stronger capacity to manage the donor transition than that of upcoming graduates. The upcoming cohort seems to have, on average, lower per capita income, greater indebtedness, weaker capacity to efficiently use public resources, more limited and less effective health systems, weaker governance and public institutions, and greater inequality.
Poor sanitation has large negative impacts on environmental quality, health, and well-being. Sanitation infrastructure is particularly lacking in India, where in 2011, 66% of households did not own a toilet. Inadequate sanitation is a large contributor to diarrheal-related diseases, which cause 300,000 deaths in Indian children each year. We exploit an experimental sanitation campaign in rural Odisha, India to examine the relationship between sanitation improvements in early childhood and long-term cognitive development. We build on literature linking child health improvements to cognitive development and labor market outcomes and show that improvements in sanitation coverage can have large human capital returns. Using treatment assignment as an instrument for village latrine coverage, we find that children who belonged to a village with higher latrine coverage scored significantly higher on a cognitive test measuring analytic ability ten years later. We find that this elect is much stronger among girls than boys.
Public debt sustainability problems are widespread in Sub-Saharan Africa just 10 years after the Heavily Indebted Poor Countries-Multilateral Debt Relief Initiative (HIPC-MDRI) debt write-off. At the same time, public investment needs for the Sustainable Development Goals remain vast. The challenge is to reconcile debt sustainability and development in an environment of dwindling aid, worsening debt sustainability and a weak foundation for long run growth. Although billed a "significant overhaul", the 2017 version of the Low-Income Country Debt Sustainability Framework (LIC DSF) is obsolete because it retains an antiquated focus on distress linked to the public and publicly guaranteed portion of external debt. A fundamental rethink rests on two planks. The first plank is a simplified DSF focusing on public debt, which recognizes that the marginal cost of government borrowing even among African Low-Income Countries, is now determined by the market, complemented by an assessment of international liquidity. The second plank is an acceptance by the IMF, the World Bank, the African Development Bank and donor community at large that the present system of aid allocation and policy dialogue is not delivering adequately, and needs to be reformulated. The paper discusses these topics and proposes a way forward, illustrated by Ethiopia.
Ethiopia was downgraded to high risk of debt distress in January 2018 based on the Low-Income Country Debt Sustainability Framework (LIC DSF), a finding reaffirmed by the updated 2017 Review of the LIC DSF, which was rolled out in the second half of 2018. This finding illustrates the shortcomings of the LIC DSF, which were supposed to have been addressed by the 2017 Review. The fundamental problem is a continued myopic focus on debt distress in relation to external public debt. In Ethiopia’s case — as with most LICs — external debt distress is a symptom of unsustainable public debt dynamics driven by high fiscal deficits that spill over into current account deficits and external debt. Ignoring this fundamental causation results in basic development questions being left off the table. For Ethiopia, these questions include: (a) What would the government’s debt dynamics look like in the absence of financial repression and overvalued exchange rates, both of which need to be corrected in order to improve the private investment climate as the Government prepares to hand off the growth baton to the private sector? And (b) will the large public investments in infrastructure pay off in terms of future growth and taxes in order to ensure fiscal solvency? The Government of Ethiopia needs answers to these questions as it implements its growth strategy and pursues its dialogue with donors and the private sector.
Because of the lack of reliable data, it is difficult to reliably answer the questions that many people are asking about China's activities in Africa: are the modes and magnitudes of Chinese finance creating unsustainable public finance and economic trajectories and — if they are — whose fault is it? Based on the available information and a rough analysis of the match between China's activities and Africa's development demands, we conclude that Chinese finance appears to have helped development on the subcontinent and has not — by itself — jeopardized its public finances: while public debt to GDP ratios have risen in the top ten recipients of Chinese loans, debt to China is generally a small portion of their external public debt. But China’s role in the debt dynamics of some of these countries — that is, the speed at which their external public debt is growing — provides more reason to worry.
Several African countries are headed into another debt crisis, just a decade or so after their slates had been wiped clean by debt relief. This is based on an assessment of country-specific debt dynamics: the debt to GDP ratios, the rate of growth of debt, the terms at which debt is being contracted relative to economic growth rates, and the willingness of governments to run primary budget surpluses if necessary.
Several smaller economies such as Ethiopia, Rwanda, and Senegal are showing that African transformations can be as rapid as those in Asia. These economies deserve international recognition and support because they will inspire others through example. But Sub-Saharan Africa's prospects will depend mainly on what happens in Nigeria, South Africa, and Angola, the three largest middle-income economies that together add up to almost two thirds of the region's economy. The economic outlook does not look good even if oil and commodity prices increase, because these countries have many of the structural attributes more typical of low-income countries in other parts of the world. We discuss three development deficits that may be the most critical: access to electricity, the quality of education, and domestic revenues.