revenues, or as a consequence of a decline in some revenue sources not matched with a contraction in capital expenditures (or any other spending program, for that matter).

**Alternative public investment policy options are assessed in the DSA** . The baseline scenario assumes that the recent public investment boom will be maintained—with capital expenditure averaging 14.5 percent of GDP in 2014-23—while fiscal policy will seek to attain balanced budgets. As argued above, policy makers in Mauritania may fail to implement these policies or may legitimately prefer others. Assessing the implications on debt sustainability of alternative investment strategies is therefore warranted, especially to assess their relative performance and thus strengthen the case for adopting certain options and disregarding others. In this study, an alternative investment policy is considered whereby projects are further scaled up and capital spending increases up to 16.5 percent of GDP in 2014-23, on average, i.e., an additional 2 percentage points of GDP relative to the baseline scenario. The _additional_ public investment expenditure is not offset by contracting current expenditures, so _ceteris paribus_ fiscal revenues, budgets would turn into deficit.

**Public investment implies borrowings to fund spending and higher financial obligations, and it may (or not) increase the government’s revenues and repayment capacity** . From the perspective of debt sustainability, public investment policies in Mauritania are to be assessed in two dimensions: i) the borrowings incurred to fund capital expenditures, which increase the debt stock and debt service obligations; and ii) the growth-dividend expected from expanding productive capacity in the country, which would translate into debt repayment capacity provided that the projects are worthwhile and the government can appropriate more revenues in the future, say through taxes. Along these lines, the higherinvestment policy described above is evaluated in two different contexts: one scenario in which the _additional_ capital expenditure eventually has no growth-dividend whatsoever and, more broadly, no impact on the anticipated macroeconomic trends in Mauritania; and another scenario where the _additional_ capital expenditure does deliver a growth-dividend and affects the prospective performance in terms of growth, competitiveness, and borrowings costs—i.e., the three key variables discusses in the previous section.<sup>7</sup> It should be bear in mind that the analysis conducted here refers to the _additional_ ( _marginal_ ) new investment projects and their potential benefits (if any), as opposed to the overall level of public capital expenditure and related projects assumed in the baseline outlook—whose benefits are probably worthy but not quantified here.

> 7 The econometric time-series model presented in Annex I is used to estimate parameters of dynamic equations that formalize the co-movements of the three macroeconomic variables and the public investment—treated as a policydriven, exogenous variable—observed in recent years. The scenario with growth-dividend is built on those parameters and thus intends to capture the salient interactions and feedbacks between the macroeconomy and the public capital projects in Mauritania.

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