export earnings. In 1990, these figures were projected<sup>to exceed 20% of GDP and fully 60% of</sup> earnings from the export of goods and services,<sup>before declining later in the decade.</sup> Increasingly, the government has been unable to meet its<sup>external and internal debt service</sup> obligations. The indebtedness of the central<sup>government and public enterprises has,</sup><sup>_inter. alia,_</sup> contnbuted to an apparent exhaustion of the capital<sup>of many banks. Aggregate data show that</sup> private investment dropped dramatically in the<sup>mid 1980s, beginning to recover in nominal (but not</sup> real) terms only by the end of the decade.

Crowding out must be considered not just in static,<sup>but also in dynamic terms. Even a fairly</sup> brief excess in public expenditure may lead to<sup>many years of diminished resources to the private</sup> sector, for two reasons. First, government borrowing<sup>to finance a deficit involves a promise of a</sup> stream of payments that will last for many years,<sup>thus policies to compensate for a deficit will also</sup> endure. For example, a recent World Bank study found<sup>that countries respond to external debt by</sup> reducing investment, rather than by increasing savings.<sup>2</sup> " Second,<sup>recurrent expenditure commitments</sup> (for personnel, inputs, and operation and maintenance)<sup>are required in the wake of large public</sup> investments.

Taxation: As detailed in Section V, GCI derives its revenue<sup>from a complex network of taxes.</sup> One principal source of revenue from the rural<sup>economy, the Agricultural Financial Surplus (AFS),</sup> actually tumed into a revenue hemorrhage during the later<sup>half of the 1980s. The complex web of</sup> urban taxes became increasingly onerous as the government<sup>attempted to draw greater revenue from</sup> a withering urban private sector. The number<sup>of large formal enterprises declined slightly between</sup> 1982 and 1988, but their taxes increased by more than<sup>twice the increase in value added (28% vs.</sup> 12%). For small and medium enterprises (PMEs),<sup>the story is worse: the number of formal sector</sup> PMEs (those reporting statistics to the government)<sup>declined by 10%, value added dropped by 27%,</sup> yet taxes paid actually increased by 19%. The percentage<sup>of GDP captured by taxes has actually</sup> declined slowly during the 1980s: it was 20.4% in 1980;<sup>19.8% in 1985, and 18.1% in 1989. With the</sup> rapid decline of non-tax revenue (due, _inter alia,_ to<sup>the growing deficit of CAISSTAB and of the</sup> public enterprise sector), an increasing share of the<sup>fiscal burden (i.e. public revenue generation)</sup> appears to be shifting to a narrowing base of urban enterprises.

Arrears to the Private Sector: Individual businesses and<sup>investors have unintentionally</sup> assumed a large burden of government debt through the<sup>government's use of domestic payment</sup> arrears to finance its deficit. By the end of 1989, the central<sup>government and other public entities</sup> had accumulated arrears totaling 556 billion CFAF (over<sup>$2 billion, or about 18% of GDP).'</sup> **21** Luis Serven and Andres Solimano, _Private Investment_<sup>_and MacroeconomicAdjustment in LDCs:_</sup> _Theory, Country Eperience and Policy Implications_ (Washington,<sup>DC:</sup> Country Economics Department, World Bank, 1991) ' There are indications of cross arrears, so this figure<sup>may exaggerate the net indebtedness of</sup> the state to the private sector.

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