Natural Gas, Public Investment and Debt Sustainability in Mozambique

 
Author/Editor: Giovanni Melina ; Yi Xiong
 
Publication Date: December 23, 2013
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability.
 
Series: Working Paper No. 13/261
Subject(s): Natural gas sector | Mozambique | Public investment | Debt sustainability | Economic models

 
English
Publication Date: December 23, 2013
ISBN/ISSN: 9781484326404/1018-5941 Format: Paper
Stock No: WPIEA2013261 Pages: 37
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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