## How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template ## Source details **Canonical URL:** [How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template](https://www.imf.org/-/media/files/publications/howtonotes/2021/english/htnea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/howtonotes/2021/english/htnea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/howtonotes/2021/english/htnea2021002.pdf.json) --- ### Introduction - Purpose: Describes how to use the Excel-based template developed by the Fiscal Affairs Department (FAD) accompanying the note “How to Design a Fiscal Strategy in a Resource-Rich Country.” - Use: Helps country authorities in RRCs and IMF teams analyze trade-offs associated with alternative fiscal strategies for the use of public resource wealth, visualize trade-offs, and assess sensitivity to macroeconomic assumptions. - Required inputs: - Medium-term forecasts of macroeconomic variables (e.g., IMF World Economic Outlook database). - Long-term projections of resource revenue. - Assumptions for key parameters such as long-term GDP growth or fiscal multipliers. - Default calibration: Template calibrated for a fictional RRC. - Key analytical outputs: - Long-term sustainable fiscal frameworks calibrated to four alternative anchors. - Volatility stress test assessing shocks to resource revenue. - Comparison against an alternative macro-fiscal framework to account for uncertainty. ### Long-term fiscal sustainability anchors (exercise 1) - Four alternative anchors computed in terms of the non-resource primary balance (NRPB): - Constant share of non-resource GDP: The NRPB is constant over time as a percent of non-resource GDP. - Real annuity per capita: The NRPB is constant over time in real per capita terms. - Real annuity: The NRPB is constant over time in real terms. - Bird-in-hand: The NRPB is constant over time as a share of existing financial assets. - Transition customization: - User can specify length and fiscal dynamics of a transition period prior to attainment of the long-term anchor. - Transition may involve gradual consolidation, initial expansion (e.g., scaling up public investment), or spending increases if current stance is tighter than anchor. - Template incorporates impact of fiscal paths on non-resource output using user-specified fiscal multipliers. - Wealth stabilization note: - The anchor implementation at the end of the transition period stabilizes wealth at its post-transition level; user may modify transition spending paths to stabilize wealth at its initial level. ### Volatility stress test (exercise 2) - Purpose: Simulate impact of shocks to resource revenue on macroeconomic and fiscal variables to test framework robustness to volatility. - Customization: - User defines magnitude and duration of commodity price shocks. - User specifies fiscal adjustment strategy in response to revenue shortfalls. - Outputs simulated for key variables: liquid assets, public debt (and wealth), and government spending. - Shock transmission modeled: - Commodity shock → resource revenue. - Resource revenue → resource GDP. - Resource GDP → non-resource GDP. - Spending adjustments → non-resource GDP. - Adjustment strategies simulated: - No adjustment: pre-shock nominal spending path unchanged. - Full adjustment: spending reduced one-to-one with resource revenue shortfall. - Partial adjustment: spending reduced to offset shortfall up to a maximum annual limit specified in . - Financing shortfalls: - Any shortfall not offset by spending reductions is met first by drawing down liquid assets and second through new borrowing. - Shock customization details: - Price shock paths defined over a 10-year horizon. - Option for temporary and permanent commodity price shocks. - Option to specify exchange rate movement associated with each commodity price shock. - Example rule-of-thumb: oil prices falling to $30 a barrel can be used to construct shock paths. ### Alternative scenario and uncertainty (exercise 3) - Purpose: Compare baseline fiscal strategy and volatility stress tests against an alternative macro-fiscal framework to account for uncertainty in long-term values. - Alternative framework: User can design a full alternative macro-fiscal framework (e.g., more prudent assumptions for resource wealth, GDP growth, interest rates, or fiscal multipliers) and compare impacts on wealth, debt, and public spending over time. - Combined use: The three exercises are designed to be conducted jointly to assess trade-offs in managing fiscal sustainability under volatility and uncertainty. ### Template structure and navigation - Three spreadsheet blocks: - Block A (yellow tabs): Instructions and data entry (user inputs only here). Includes , , , , , , and buffer inputs. - : Country name, up to two main commodities, last historical year, medium-term horizon, fiscal coverage (central government/general government/non-financial public sector), option to construct an alternative scenario. Tabs with suffix _A show alternative framework data. - : Historical data and medium-term projections. - : Long-term projections to 2150 of public resource revenue for each commodity and the exchange rate; option for an alternative projection scenario for resource revenue, resource GDP, and exchange rate. - : Three blocks of assumptions with explanatory notes in column G (calibration parameters and model functioning). - : Specify adjustments versus baseline for capital and current expenditure as percent of non-resource GDP; transition customization examples provided. - : Input projected baseline export price per commodity and define shock paths over a 10-year horizon; option to specify exchange rate movements associated with shocks. - Block B (blue tabs, hidden by default): Model calculations and underlying computations. - : Generates macro-fiscal framework to year 2150 using Block A inputs. - Anchor computation tabs: - : Computes NRPB consistent with each of the four anchors assuming anchor attained in first year (no multipliers). - : Computes anchor attained at end of transition period (no multipliers). - : Incorporates fiscal multipliers and additional spending to maintain capital stock (offset annual depreciation) where relevant. - : Recomputes anchors assuming no future resource revenues to assess additional fiscal space created by saving resource revenues (illustrative simplification). - : Computes GDP impact of deviations in investment and current spending using short-term fiscal multiplier framework in IMF (2014), plus long-term multiplier for permanent capital stock increases and multiplier for spillovers from resource GDP to non-resource GDP. - : Calculates impact of commodity price shocks on resource revenue and macro-fiscal variables; uses three adjustment strategies described above. Buffer inputs compiled from . - Additional operational assumptions: - Primary surpluses are used to accumulate net financial assets with prioritization: i) repay excess debt (above desired debt floor), and ii) build wealth fund assets (illustrative and does not affect net wealth projections). - Government deposits are assumed to always be at their steady-state level (user-defined), financed through additional borrowing if necessary. - Permanent income hypothesis-based anchor computation uses the effective interest rate on net financial wealth to discount assets and liabilities; wealth stability result depends on constant values for interest rates, inflation, and growth. - Block C (green tabs): Results and panel charts compiled from . - Charts include: - : Existing net financial wealth and total net wealth by asset and liability type. - : Time series of projected resource revenues for each commodity and present value of remaining in-the-ground resource wealth. - : User-customizable panel charts present all simulation results. ### Color-coding and cell conventions - Tab color coding: yellow = data entry (Block A); blue = calculations (Block B), with lighter shade for alternative framework; green = panel charts (Block C), lighter shade for alternative framework. - Cell color conventions: - Yellow: user-input cells/rows (only cells the user needs to manipulate). - Green: data derived from other tabs. - Blue: data derived from calculations. - Red: check lines that should be zero at all times. ### Notes, references, and calibration guidance - Resource revenue projections recommendation: Construct using bottom-up methods (for example, the IMF’s FARI model), where possible. - Fiscal multipliers: Short-term fiscal multiplier framework per IMF (2014). See IMF (2014) references for calibration guidance and empirical estimates of investment spending multipliers. - Simplifications and caveats: - Fiscal space counterfactual is highly simplified and illustrative; past fiscal policy would likely have differed in the absence of resource revenues. - Permanent income anchor results rely on constant discount rate and macro variables during the projection period. - Shock path construction can be based on historical volatility, financial futures markets, or simple rules of thumb. ### Template panels and functionality (Section 2) - Time-series charts to compare projected macroeconomic and fiscal variables under different sustainability anchor calibration methods; in these charts, the anchor is assumed to be attained immediately, with no impact from fiscal multipliers. - A dropdown menu allows the user to select the Y-axis normalization (percent of non-resource GDP/ total GDP, constant prices, constant prices per capita). - The change in resource revenues is assumed to be proportional to the change in commodity prices (though non-linear responses can be accommodated through overwriting the “shock” resource revenues series). - Output responses are based on fiscal multipliers in the tab. A unitary elasticity of non-resource revenues with respect to changes in non-resource GDP is assumed. - - Time-series charts showing projected macroeconomic and fiscal variables for the chosen anchor calibration method and transition path. - Provides a summary overview of the chosen fiscal strategy. - - Time series charts showing the impact of the commodity price shock on key macro-fiscal variables for different fiscal responses (no adjustment, partial adjustment, full adjustment). - Users can specify temporary or permanent commodity price shocks. - - Time series charts comparing the main and alternative macro-fiscal frameworks for key macro-fiscal variables (user specifies anchor calibration method and transition path). - - Time series charts showing the impact of the commodity price shock on key macro-fiscal variables for different fiscal responses and for the two versions of the macroeconomic framework (main and alternative). - Users can specify temporary or permanent commodity price shocks and the adjustment scenario. ### Key modeling assumptions (Section 2) - Anchor attainment is modeled as immediate with no fiscal multiplier impacts in the comparison charts. - Resource revenue changes scale proportionally with commodity price changes unless the user overwrites the “shock” resource revenues series to model non-linear responses. - Fiscal multiplier-driven output responses reference the fiscal multipliers defined in the tab. - A unitary elasticity of non-resource revenues with respect to non-resource GDP changes is assumed. ### Comparison with the 2012 template — suggested improvements and 2020 modifications - Background: - The previous template was a companion to IMF (2012a). - Based on a 2016 survey of IMF country teams. - Key improvements: - More intuitive presentation of results to help countries to think in PIH terms. - Two variations introduced: “constant real annuity” and “constant real annuity per capita” in addition to the traditional PIH anchor. - New charts showing “savings out of resource revenue” and “fiscal space from resource revenue.” - More flexibility to incorporate different fiscal paths toward the long-term anchor. - User can define a transition path and associated fiscal multipliers. - Time varying (rather than static) growth and interest rate assumptions. - User-defined medium-term macroeconomic projections combined with long-term assumptions. - More flexibility in modeling investment scaling-up. - User specifies short-term and long-term investment multipliers and a depreciation rate. - Option to specify different paths for current and capital spending. - Greater capability for scenario analysis. - Option to create an alternative macro-fiscal framework for sensitivity analysis and instantly compare impacts. - Volatility stress test added to assess commodity price shocks on key variables. *Source: htnea2021002 - Section 1 and Section 2, How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template (International Monetary Fund, March 2021).* ### Section 1 ### How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template ### Introduction - Purpose: Describes how to use the Excel-based template developed by the Fiscal Affairs Department (FAD) accompanying the note “How to Design a Fiscal Strategy in a Resource-Rich Country.” - Use: Helps country authorities in RRCs and IMF teams analyze trade-offs associated with alternative fiscal strategies for the use of public resource wealth, visualize trade-offs, and assess sensitivity to macroeconomic assumptions. - Required inputs: - Medium-term forecasts of macroeconomic variables (e.g., IMF World Economic Outlook database). - Long-term projections of resource revenue. - Assumptions for key parameters such as long-term GDP growth or fiscal multipliers. - Default calibration: Template calibrated for a fictional RRC. - Key analytical outputs: - Long-term sustainable fiscal frameworks calibrated to four alternative anchors. - Volatility stress test assessing shocks to resource revenue. - Comparison against an alternative macro-fiscal framework to account for uncertainty. ### Long-term fiscal sustainability anchors (exercise 1) - Four alternative anchors computed in terms of the non-resource primary balance (NRPB): - Constant share of non-resource GDP: The NRPB is constant over time as a percent of non-resource GDP. - Real annuity per capita: The NRPB is constant over time in real per capita terms. - Real annuity: The NRPB is constant over time in real terms. - Bird-in-hand: The NRPB is constant over time as a share of existing financial assets. - Transition customization: - User can specify length and fiscal dynamics of a transition period prior to attainment of the long-term anchor. - Transition may involve gradual consolidation, initial expansion (e.g., scaling up public investment), or spending increases if current stance is tighter than anchor. - Template incorporates impact of fiscal paths on non-resource output using user-specified fiscal multipliers. - Wealth stabilization note: - The anchor implementation at the end of the transition period stabilizes wealth at its post-transition level; user may modify transition spending paths to stabilize wealth at its initial level. ### Volatility stress test (exercise 2) - Purpose: Simulate impact of shocks to resource revenue on macroeconomic and fiscal variables to test framework robustness to volatility. - Customization: - User defines magnitude and duration of commodity price shocks. - User specifies fiscal adjustment strategy in response to revenue shortfalls. - Outputs simulated for key variables: liquid assets, public debt (and wealth), and government spending. - Shock impacts modeled on: - Commodity shock → resource revenue. - Resource revenue → resource GDP. - Resource GDP → non-resource GDP. - Spending adjustments → non-resource GDP. - Adjustment strategies simulated: - No adjustment: pre-shock nominal spending path unchanged. - Full adjustment: spending reduced one-to-one with resource revenue shortfall. - Partial adjustment: spending reduced to offset shortfall up to a maximum annual limit specified in . - Financing shortfalls: - Any shortfall not offset by spending reductions is met first by drawing down liquid assets and second through new borrowing. - Shock customization details: - Price shock paths defined over a 10-year horizon. - Option for temporary and permanent commodity price shocks. - Option to specify exchange rate movement associated with each commodity price shock. - Example rule-of-thumb: oil prices falling to $30 a barrel can be used to construct shock paths. ### Alternative scenario and uncertainty (exercise 3) - Purpose: Compare baseline fiscal strategy and volatility stress tests against an alternative macro-fiscal framework to account for uncertainty in long-term values. - Alternative framework: User can design a full alternative macro-fiscal framework (e.g., more prudent assumptions for resource wealth, GDP growth, interest rates, or fiscal multipliers) and compare impacts on wealth, debt, and public spending over time. - Combined use: The three exercises are designed to be conducted jointly to assess trade-offs in managing fiscal sustainability under volatility and uncertainty. ### Template structure and navigation - Three spreadsheet blocks: - Block A (yellow tabs): Instructions and data entry (user inputs only here). Includes , , , , , , and buffer inputs. - : Country name, up to two main commodities, last historical year, medium-term horizon, fiscal coverage (central government/general government/non-financial public sector), option to construct an alternative scenario. Tabs with suffix _A show alternative framework data. - : Historical data and medium-term projections. - : Long-term projections to 2150 of public resource revenue for each commodity and the exchange rate; option for an alternative projection scenario for resource revenue, resource GDP, and exchange rate. - : Three blocks of assumptions with explanatory notes in column G (calibration parameters and model functioning). - : Specify adjustments versus baseline for capital and current expenditure as percent of non-resource GDP; transition customization examples provided. - : Input projected baseline export price per commodity and define shock paths over a 10-year horizon; option to specify exchange rate movements associated with shocks. - Block B (blue tabs, hidden by default): Model calculations and underlying computations. - : Generates macro-fiscal framework to year 2150 using Block A inputs. - Anchor computation tabs: - : Computes NRPB consistent with each of the four anchors assuming anchor attained in first year (no multipliers). - : Computes anchor attained at end of transition period (no multipliers). - : Incorporates fiscal multipliers and additional spending to maintain capital stock (offset annual depreciation) where relevant. - : Recomputes anchors assuming no future resource revenues to assess additional fiscal space created by saving resource revenues (illustrative simplification). - : Computes GDP impact of deviations in investment and current spending using short-term fiscal multiplier framework in IMF (2014), plus long-term multiplier for permanent capital stock increases and multiplier for spillovers from resource GDP to non-resource GDP. - : Calculates impact of commodity price shocks on resource revenue and macro-fiscal variables; uses three adjustment strategies described above. Buffer inputs compiled from . - Additional operational assumptions: - Primary surpluses are used to accumulate net financial assets with prioritization: i) repay excess debt (above desired debt floor), and ii) build wealth fund assets (illustrative and does not affect net wealth projections). - Government deposits are assumed to always be at their steady-state level (user-defined), financed through additional borrowing if necessary. - Permanent income hypothesis-based anchor computation uses the effective interest rate on net financial wealth to discount assets and liabilities; wealth stability result depends on constant values for interest rates, inflation, and growth. - Block C (green tabs): Results and panel charts compiled from . - Charts include: - : Existing net financial wealth and total net wealth by asset and liability type. - : Time series of projected resource revenues for each commodity and present value of remaining in-the-ground resource wealth. - : (Continues in template charts; user-customizable panel charts present all simulation results.) ### Color-coding and cell conventions - Tab color coding: yellow = data entry (Block A); blue = calculations (Block B), with lighter shade for alternative framework; green = panel charts (Block C), lighter shade for alternative framework. - Cell color conventions: - Yellow: user-input cells/rows (only cells the user needs to manipulate). - Green: data derived from other tabs. - Blue: data derived from calculations. - Red: check lines that should be zero at all times. ### Notes, references, and calibration guidance - Resource revenue projections recommendation: Construct using bottom-up methods (for example, the IMF’s FARI model), where possible. - Fiscal multipliers: Short-term fiscal multiplier framework per IMF (2014). See IMF (2014) references for calibration guidance and empirical estimates of investment spending multipliers. - Simplifications and caveats: - Fiscal space counterfactual is highly simplified and illustrative; past fiscal policy would likely have differed in the absence of resource revenues. - Permanent income anchor results rely on constant discount rate and macro variables during the projection period. - Shock path construction can be based on historical volatility, financial futures markets, or simple rules of thumb. *Source: htnea2021002 - Section 1, How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template (International Monetary Fund, March 2021).* ### Section 2 ### htnea2021002 - Section 2 ### Template panels and functionality - Time-series charts to compare projected macroeconomic and fiscal variables under different sustainability anchor calibration methods. In these charts, the anchor is assumed to be attained immediately, with no impact from fiscal multipliers. - A dropdown menu allows the user to select the Y-axis to use for normalizing the variables in each chart (percent of non-resource GDP/ total GDP, constant prices, constant prices per capita). - The change in resource revenues is assumed to be proportional to the change in commodity prices (though non-linear responses can be accommodated through overwriting the “shock” resource revenues series). - These output responses are based on the fiscal multipliers in the tab. A unitary elasticity of non-resource revenues with respect to changes in non-resource GDP is assumed. - (iv) - Time-series charts showing projected macroeconomic and fiscal variables for the chosen anchor calibration method (selected in in the dropdown menu) and transition path. - This panel can also provide a useful summary overview of the chosen fiscal strategy. - (v) - Time series charts showing the impact of the commodity price shock on key macro-fiscal variables for different responses of fiscal policy (no adjustment, partial adjustment, full adjustment). - Users can specify in the dropdown menu to show the results for either a temporary or permanent commodity price shock. - (vi) - Time series charts showing a comparison of the main and alternative macro-fiscal frameworks for key macro-fiscal variables (the user specifies the anchor calibration method and transition path assumptions in the dropdown menu). - (vii) - Time series charts showing the impact of the commodity price shock on key macro-fiscal variables for different responses of fiscal policy (no adjustment, partial adjustment, full adjustment) and for the two versions of the macroeconomic framework (main and alternative). - Users can specify in the dropdown menu to show the results for either a temporary or permanent commodity price shock and specify the adjustment scenario. ### Key modeling assumptions - Anchor attainment is modeled as immediate with no fiscal multiplier impacts in the comparison charts. - Resource revenue changes scale proportionally with commodity price changes unless the user overwrites the “shock” resource revenues series to model non-linear responses. - Fiscal multiplier-driven output responses reference the fiscal multipliers defined in the tab. - A unitary elasticity of non-resource revenues with respect to non-resource GDP changes is assumed. ### Comparison with the 2012 template — suggested improvements and 2020 modifications - The previous template was a companion to IMF (2012a). - Based on a 2016 survey of IMF country teams. - A more intuitive presentation of results to help countries to think in PIH terms. - Two variations of the long-term sustainability anchor introduced: “constant real annuity” and “constant real annuity per capita.” These anchors have a more intuitive interpretation than the traditional PIH anchor (constant share of non-resource GDP). - New charts showing “savings out of resource revenue” and “fiscal space from resource revenue.” - More flexibility to incorporate different fiscal paths toward the long-term anchor. - User can define a transition path and associated fiscal multipliers. - Time varying (rather than static) growth and interest rate assumptions. - User-defined medium-term macroeconomic projections are combined with long-term assumptions. - More flexibility in modeling investment scaling-up. - The user specifies short-term and long-term investment multipliers and a depreciation rate. - An option to specify different paths for current and capital spending is included. - Greater capability for scenario analysis. - Option to create an alternative macro-fiscal framework for sensitivity analysis—varying assumptions for resource revenues, growth, interest rates, multipliers, and so on, and instantly compare the impact on the key variables. - Volatility stress test added. The user can assess the impact of commodity price shocks on key variables. *International Monetary Fund | March 2021* --- _Source: https://www.imf.org/-/media/files/publications/howtonotes/2021/english/htnea2021002.pdf_