Policy Selectivity Foregone: Debt and Donor Behavior in Africa - Working Paper 17

Ishac Diwan
July 13, 2005
We assess the dynamic behind the high net resource transfers of donors and creditors, IDA, bilaterals, IBRD, IMF and other multilateral creditors to the countries of sub-Saharan Africa in the 1980s and 1990s. Analyzing a panel of 37 recipient countries over the years 1978-98, we find that net transfers were greater in poorer and smaller countries. The quality of countries' policy framework mattered little, however, in determining overall net transfers. For recipient countries with high debt largely owed to multilateral creditors, the donors — especially bilateral — made greater transfers to countries with "bad" policies. This suggests that donors were unable to exercise much selectivity once recipient countries became highly indebted. One implication is that comprehensive debt relief would restore donors' ability to be selective with respect to the quality of countries' policy. Were that ability better exploited going forward, development assistance would be more effective, building the case for greater public support in the donor countries in the longer run.

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