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I don't think you're accounting for interest in that calculation. If they have borrowed 60% of GDP at an interest rate of 3%, it would take a 1.8% annual increa
by ezzaf 10y ago
I don't think you're accounting for interest in that calculation. If they have borrowed 60% of GDP at an interest rate of 3%, it would take a 1.8% annual increase in GDP just to match the interest on the loan.
That is also ignoring the fact that you can't just take the entire GDP growth and use it to pay the loan, you have to collect fares and taxes which can only be a proportion of that growth. If you collect more in fares than the increase in GDP, you're leaving the country poorer than they would be without the railway.
Djibouti is going to need to see some pretty big additional growth from the railway to make the project worthwhile. Not to say they won't, be it's easy to underestimate just how big of a debt burden it is for a small country.
- ww520 10y agoThe sample 5%/year loan payment already includes the interest and principle repayment, where the interest rate incidentally is about 3%. Annual debt service is 5% x 60% of GDP = 3% of GDP. As the GDP grows, the portion of the debt service each year becomes less and less, 2.9%, 2.8%, ... The train system presumably generates revenue, where the operating income can be used to pay off the debt, rather than paid by tax on the GDP. A train system has transformative benefits to a nation. The benefits are still there long after the debt is gone. The ROI period is way longer than 30 years.
- deleted 10y ago[deleted]