Post-HIPC Growth Dynamics in Sub-Saharan Africa: An Application to Ethiopia

Abstract

Abstract Over the past few years, Completion Point countries under the Highly Indebted Poor Country (HIPC) Initiative across Sub-Saharan Africa have enjoyed significantly higher investments and growth rates, primarily fueled by the expanding fiscal space of the post-HIPC era. Despite these post-HIPC growth rebounds, the region is not likely to meet the Millennium Development Goals (MDGs). 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 and these gloomy prospects are likely to be even undermined by the risk of another sovereign debt crisis. A rapid expansion of capital accumulation financed by sustained foreign aid is required to increase income considerably.