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Senegal : a study of alternative foreign borrowing strategies (Inglês)

This paper studies the impact of alternative foreign borrowing strategies on economic growth and social welfare in Senegal. The main tool of analysis used is a dynamic optimal control model where the objective is to maximize the discounted sum of per capita utility using foreign borrowing and investment as controls. The model is used to assess past borrowing strategies and to present recommendations for the future. The assessment of past policies is carried out by comparing actual past behavior with the model results. Thus, the paper presents estimates of past over-borrowing and over-investment and attempts to analyze the factors to which they can be attributed. A projections exercise is also carried out and desired future borrowing and investment paths are presented. The impact of domestic policy changes and of modifications in donors' behavior on those desired paths is also studied. Senegal is extremely vulnerable to exogenous random shocks. Therefore, the model is used to derive appropriate policy responses to the occurence of droughts, changes in the terms of trade and changes in the cost of foreign borrowing.

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