World Bank Document

Figure 4.5 Borrowing and growth in selected developing countries, 1965-83
From 1965 to 1972 From 1973 to 1978
Average annual growth of GDP (percent)
Average annual growth of GDP (percent)
10 12
Nigeria Brazil Korea Egypt
8 Kenya Brazil
Mexico Indonesia Indonesia a / Morocco
f 6 *b *
6 ,, Colomrbia ,ndia X e,
a** .
a e Philippines
Pakistan
Papua
P e
Peru
4 * * a * a New Guinea * Portugal Zambia
Egypt 0 , Peru 0 o *
2
Uruguay Zambia * Ghana
Sudan a Senegal a Jamaica * Zaire
0 Niger. -6
-10 0 10 20 30
Percentage change in debt/GDP,
12 From 1979 to 1983
e Latin America and Caribbean a Sub-Saharan Africa Egypt
* South Asia a East Asia and Pacific
Pakistan
Europe and North Africa 6 _ Cameroon
Malaysia
Note: The change in borrowing rates is represented by the percentage
point change in the ratio of total medium- and long-term
g
geria
e
debt outstanding and disbursed to GDP between the average of
Morocco
the two beginning and end years of each period. Growth rates
are in real terms, based on trend line calculations. The relationship
between borrowing rates and growth is positive for the 0 a a
Papua New
Guinea t
1965-72 and 1973-78 periods but is significant at the 95 percent Ivory Coast
confidence levrel only for Latin American borrowers in the latter
Chile e
period. The relationship is negative and significant at the 99 per-
Libera s
cent confidence level for all countries shown in the 1979-83 * / Bolivia
period, with R 2 = .24. Nigeria Argentia
a. Data are for 1968-72.
-6
-20 0 20 40
Source: World Bank data.
Percentage change in debt/GDP
enterprises that appear to be profitable in financial severe in Africa. A recent World Bank report,
terms may be so because the industries are pro- Toward Sustained Development in Sub-Saharan Africa,
tected by tariffs and regulations or because they in discussing the large inflows of commercial borare
subsidized by the government through low- rowings in the 1970s, concludes:
interest loans or cash transfers. In economic terms,
however, the project may be unprofitable and may While part of these borrowings was used to maincontribute
little or nothing to the economy's tain consumption when commodity prices fell
growth. The discrepancy between financial and (such as in Zambia), most of them went to finance
economic evaluation can be overcome by making large public investments, many of which contribmore
use of techniques such as shadow pricing uted little to economic growth or to generating the
in project appraisal and, more importantly, by pol- foreign exchange to service the debt. These
icy reforms-liberalizing imports, decontrolling projects covered a wide spectrum of sectors and
prices, reducing subsidies-designed to narrow countries. Examples include projects such as large
the gap between financial and economic returns. conference centers, administrative buildings, uni-
The problem of inadequate appraisal is common versity centers, hotels, and highways, as well as
in most developing countries, but is particularly projects in the industrial sector, such as oil and
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