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Debt Relief and Social Services Expenditure: The African Experience, 1989–2003
Author(s) -
Dessy Sylvain E.,
Vencatachellum Désiré
Publication year - 2007
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/j.1467-8268.2007.00154.x
Subject(s) - debt , external debt , debt service coverage ratio , international community , economics , club , internal debt , developing country , economic growth , finance , business , development economics , economic policy , political science , politics , medicine , law , anatomy
In June 2005 the G8 proposed the Multilateral Debt Relief Initiative (MDRI) with the goal of canceling all International Development Association (IDA), International Monetary Fund (IMF) and African Development Fund (ADF) debt claims on countries that have reached, or will eventually reach, the completion point under the enhanced Highly Indebted Poor Countries (HIPC) initiative. The objective is to help HIPC make progress towards the Millennium Development Goals. The G8 initiative is worth $40 billion and would benefit 14 African countries immediately. It has the potential of freeing more resources than any past debt relief program. Between the 1988 Paris Club debt relief program up to 2003, Africa earned debt relief worth $65 billion. We take a critical look at the chances that the G8 initiative will reach its goals by empirically investigating the extent to which past debt relief granted to African countries did translate into a larger share of resources being allocated to social services expenditure. Our estimates indicate that debt relief provided to Africa between 1989 and 2003 had a positive impact on the share of a country's resources allocated either to public education or health in countries which have improved their institutions. Consequently, donors must address the need for institutional change as they grant debt relief to HIPC if the latter are to channel the freed‐up resources to the social sector.