Public Investment in a Developing Country Facing Resource Depletion

By Adrian Alter, Matteo Ghilardi, Dalia S Hakura

November 10, 2015

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Adrian Alter, Matteo Ghilardi, and Dalia S Hakura. Public Investment in a Developing Country Facing Resource Depletion, (USA: International Monetary Fund, 2015) accessed September 19, 2024

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

This paper analyzes the tradeoffs between savings, debt and public investment in the Republic of Congo, a developing country with looming oil exhaustibility concerns. Our results highlight the risks to fiscal and capital sustainability of oil exporting countries from large scaling-up in public investment and oil price volatility in view of a projected decline in the oil revenue to GDP ratio. However, structural reforms that improve the efficiency of public investment can allow for a relatively faster buildup of sustainable public capital and sustain higher non-oil growth without adversely affecting the debt ratio or savings. Moreover, we show that even if a government pursues prudent fiscal policy that preserves resource wealth and debt sustainability in the face of exhaustible and volatile resource revenues, low public investment quality in the form of a misallocation of resources can hinder attainment of sustainable public capital and positive non-oil growth.

Subject: Expenditure, Oil prices, Oil, gas and mining taxes, Prices, Public debt, Public investment spending, Taxes

Keywords: Benchmark investment scenario, Central Asia, Debt Sustainability, East Asia, Gas and mining taxes, GDP growth, Global, Government investment expenditure, Investment adjustment cost, Investment cost, Investment efficiency, Investment increase, Investment scaling-up phase, Investment scenario, Middle East, Oil, Oil prices, Oil revenue, Project misallocation, Project Selection, Public Capital, Public investment spending, Resource exhaustibility, Sub-Saharan Africa, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/236
Stock No:

WPIEA2015236
ISBN:

9781513530253
ISSN:

1018-5941

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