This paper analyses a large public investment in a construction of a hydropower plant in
Lesotho and its implications on the growth and debt sustainability. The paper employs an
open economy dynamic general equilibrium model to assess the benefits of a large public
investment through growth-enhancing increase in domestic energy supply and receipts from
selling electricity abroad to ease the fiscal burden, which is often associated with big
investment projects. During the transition (construction stage), various financing options are
explored: increase in the public debt, increase in domestic revenue (fiscal adjustment), and
combination. The calibration matches Lesotho's data and it captures the project's main
challenges regarding the project costs. Moreover,the key remaining issue is the agreement
with South Africa to purchase sufficient amount of electricity to allow the potential plant to
run at a high capacity. We find that, the project can lead to sizable macroeconomic benefits
as long as costs are relatively low and demand from South Africa is sufficiently high.
However, the risks for the viability of the project are high, if these assumptions are violated.
This paper discusses key findings of the 2004 Status Report on Poverty Reduction Strategy Paper (PRSP) for Niger. The report assesses economic and financial performance, as well as progress in implementing sectoral policies and strategies in 2004. Analysis of the economic and financial situation in 2004 confirms the vulnerability of Niger’s economy to the vagaries of the weather, as reflected in a fluctuating rate of economic growth. The growth rate in 2004 was -0.6 percent, versus 3.8 percent in 2003, owing to a drop in agricultural output.