External Debt, Quality of Institutions, and Economic Growth in WAEMU

Abstract

The drive to achieve robust growth and sustainable development immediately after gaining independence led most Sub-Saharan African countries to deploy the means and strategies needed to reorient their economic development policies. However, the economic, financial, and institutional situation in the 1960s was too bleak to guarantee economic take-off in the West African Economic and Monetary Union (WAEMU) member states. Hence, recourse to external debt became the norm from the 1970s. Over the past 30 years, the Bretton Woods institutions have granted a huge amount of concessional loans to WAEMU member countries. These loans were supposed to orient economic policy towards sustained economic growth, and thereby ensure the development of the various states. Indeed, economic theory suggests that well-channeled external debt can help these countries to boost their growth. However, the results obtained from such debt were not very encouraging. Several countries were not able to create enabling conditions for sustained economic growth, and thus develop their economies. The debt exploded and became a crushing burden on poor countries. To tackle these problems and avert such situations in the future, measures were taken to harden external borrowing conditions. Among the prudential measures adopted by the International Monetary Fund (IMF), “good governance” appears to be the most overarching criterion to help governments correct their debt management shortcomings and promote debt management transparency.