## _wp09174

## Source details

**Canonical URL:** [_wp09174](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09174.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09174.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09174.pdf.json)

---

### I. Introduction
- Scope: analysis limited to eight oil-producing countries in sub-Saharan Africa: Angola, Côte d’Ivoire, Nigeria; and, in the Gulf of Guinea, Cameroon, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.
- Objective: gauge fiscal vulnerability and sustainability in managing exhaustible oil wealth and analyze challenges from oil price volatility.
- Focus indicator: the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments influence long-term fiscal sustainability under several models of fiscal rules.
- Research strategy: apply the same simplifying assumptions and models to each of the eight countries to allow comparative assessment.
- Motivations and preliminary observations:
  - The global financial crisis elevates the risk of setbacks if growth slows further, narrowing room to maneuver given lack of prior fiscal adjustment.
  - Decline in oil prices versus possible need for fiscal stimulus creates a trade-off: falling oil revenues mean some fiscal adjustment is necessary to avoid fiscal deterioration.
  - Low world oil prices and minimal global activity could dampen investment in the oil sector; without new discoveries, production horizons for six of the eight countries are relatively short, increasing fiscal vulnerability.
  - Procyclical fiscal policy has generally been the norm in most sub-Saharan oil-producing countries.

### II. Background
#### A. Oil Resources
- Collective production: about 1.9 billion barrels of oil in 2008; projected to increase to nearly 2 billion barrels in 2009.
- Share of world production: about 5 percent.
- Production concentration:
  - Nigeria accounted for more than 40 percent of the total over the last several years.
  - Angola, Congo, Equatorial Guinea, and Gabon about 5–6 percent each.
  - Cameroon, Chad, and Côte d’Ivoire about 1–2 percent each.
- Proven oil reserves (2009): estimated at about 52 billion barrels in the group.
  - Nigeria: estimated 36.4 billion barrels, 70 percent of the total.
  - Angola: about 18 percent.
  - Five CEMAC countries: about 11 percent.
  - Côte d’Ivoire: remaining 1 percent.
- Projected production horizons (based on proven reserves and current production capacity):
  - Nigeria: 50 years or more.
  - Gabon: about 32 years, ending in 2041.
  - Other countries: horizons extending until about 2030–35, with Angola, Cameroon, and Congo tapping out earliest.
- Note: analysis limited to proven oil reserves; natural gas reserves not included.

#### B. Oil Dependence
- Real non-oil GDP growth, average annual growth (2005–08):
  - Angola: Non-oil GDP 21.9; Oil GDP 15.0; Overall GDP 17.9
  - Cameroon: Non-oil GDP 3.7; Oil GDP -1.5; Overall GDP 3.4
  - Chad: Non-oil GDP 3.7; Oil GDP -9.9; Overall GDP 0.0
  - Congo, Republic of: Non-oil GDP 6.0; Oil GDP 1.5; Overall GDP 3.3
  - Côte d'Ivoire: Non-oil GDP 1.5; Oil GDP 1.7; Overall GDP 1.5
  - Equatorial Guinea: Non-oil GDP 31.0; Oil GDP 4.3; Overall GDP 11.0
  - Gabon: Non-oil GDP 4.7; Oil GDP 0.8; Overall GDP 2.9
  - Nigeria: Non-oil GDP 8.9; Oil GDP -4.5; Overall GDP 6.0
- Importance of oil sector (2006–08):
  - Oil sector accounts for majority of economic activity in four of eight countries; exceeding two-thirds in Equatorial Guinea and Congo.
  - Nigeria: oil sector about one-third of total economy.
  - Cameroon: about 10 percent oil GDP share.
  - Côte d’Ivoire: less than 4 percent oil GDP share.
  - Exports and revenue dependence:
    - For six countries, oil accounts for more than two-thirds of total exports.
    - For five countries, oil accounts for more than two-thirds of total revenue.
    - Angola and Equatorial Guinea: ratio of oil exports to total exports above 90 percent.

### III. Recent Fiscal Developments and Prospects
#### A. History Repeats Itself
- World oil prices run-up (2005–2008): prices doubled in nominal terms, from an average of US$53.35 to US$102.25.
- Fiscal response during the run-up:
  - Opportunity to consolidate fiscal positions largely missed; fiscal positions moved procyclically and non-oil deficits widened.
  - Some reduction in external debt in Nigeria and Gabon, but no widespread fiscal consolidation.
- Ability to smooth spending:
  - Correlation coefficients of total government expenditure and world oil price (1970–2008):
    - Angola: 0.99 (data for 1996-2008)
    - Cameroon: 0.73
    - Chad: 0.86
    - Congo, Republic of: 0.78
    - Côte d'Ivoire: 0.73
    - Equatorial Guinea: 0.90
    - Gabon: 0.65
    - Nigeria: 0.82
  - Interpretation: positive correlation above 0.7 for all but Gabon indicates limited smoothing and procyclical spending.
  - Thornton (2008) evidence: statistically significant response of real government consumption to cyclical upturn for all in the group except Angola; for Côte d’Ivoire, Congo, and Equatorial Guinea the response was more than proportionate.
- Spending vs. oil revenue growth (2006–08):
  - Growth in current spending outpaced growth in oil revenue in Angola, Cameroon, Chad, Equatorial Guinea, and Nigeria.
  - High rates of growth in capital outlays in Angola, Cameroon, and Equatorial Guinea.
  - Better control of current spending relative to oil revenue increases in Côte d’Ivoire, Congo, and Gabon.
- Non-oil primary balance (percent of non-oil GDP, 2006–08):
  - Angola: -50.3 (2006), -56.9 (2007), -61.3 (2008)
  - Cameroon: -1.4 (2006), -2.8 (2007), -7.8 (2008)
  - Chad: -21.2 (2006), -26.9 (2007), -30.1 (2008)
  - Congo, Republic of: -53.9 (2006), -59.0 (2007), -47.8 (2008)
  - Côte d'Ivoire: -3.1 (2006), -1.9 (2007), -4.5 (2008)
  - Equatorial Guinea: -29.0 (2006), -34.9 (2007), -50.3 (2008)
  - Gabon: -15.7 (2006), -10.4 (2007), -12.0 (2008)
  - Nigeria (consolidated government): -33.7 (2006), -34.7 (2007), -31.8 (2008)
- Observations:
  - Fiscal position worsened as oil prices soared in Angola, Cameroon, Chad, Côte d’Ivoire, and Equatorial Guinea.
  - Angola: non-oil primary deficit higher by the equivalent of 11 percent of non-oil GDP (2008 vs 2006).
  - Equatorial Guinea: deficit higher by about 20 percent of non-oil GDP (2008 vs 2006).
  - Congo: non-oil primary deficit declined (consolidation equivalent to about 6 percent of non-oil GDP).

#### Public Financial Management and Institutions
- Limited improvement in public financial management and special fiscal institutions despite increased spending.
- Quality of public sector management and institutions (2005–07):
  - Six of eight countries rank below the average of all IDA-eligible countries on World Bank-derived quality indices.
  - Limited progress since 2005 in areas including budget and financial management, efficiency of revenue mobilization, quality of public administration, transparency, accountability, and corruption in the public sector.
- Selected indicators of institutional quality, 2000 and 2007:
  - Political risk (100=low, 0=high), percentile rank and government effectiveness (score -2.5 to +2.5) show six countries rank low on political risk and government effectiveness.
  - Examples (percentile rank; score):
    - Angola 2000: 47.0; -1.39; 2007: 57.5; -1.16
    - Cameroon 2000: 56.0; -0.75; 2007: 66.0; -0.87
    - Congo, Rep. of 2000: 52.0; -1.52; 2007: 55.0; -1.34
    - Memorandum: Norway 2000: percentile rank 89.0; score 1.95; 2007: 89.5; score 2.12
  - Equatorial Guinea and Chad have many entries n.a. for 2000; 2007 percentile ranks low with government effectiveness around -1.37 to -1.45.

#### Special Fiscal Institutions and Reform Efforts
- Many countries have turned to special fiscal institutions as a second-best option to tighten public financial management.
- Evidence and use:
  - Ossowski et al. (2008) find special fiscal institutions can help manage oil wealth but are most effective where fiscal prudence existed prior to creation.
  - Sub-Saharan oil producers have limited and mixed experience:
    - No country uses explicit fiscal rules or fiscal responsibility legislation (with fiscal stance in Congo and Equatorial Guinea reportedly guided by a model based on the permanent income hypothesis).
    - Oil-wealth funds exist only in Equatorial Guinea and Gabon (Funds for Future Generations).
    - Angola, Cameroon, and Nigeria budget an oil price and save oil revenue above the reference price in extra-budgetary accounts.
    - In Nigeria, proceeds from such savings intended for public investments agreed between federal and state governments.
- Medium-term fiscal frameworks:
  - Only Nigeria uses a medium-term expenditure framework to link budget with longer-term policies and fiscal sustainability; Congo is working on one.
- Revenue mobilization efforts:
  - All eight countries place importance on accelerating domestic revenue mobilization to reduce dependence on oil revenue.
  - Projected increases in non-oil revenue as a proportion of total revenue are planned mainly through tax and customs administration reform and tax policy measures.

### Box 1. Special Fiscal Institutions for the Management of Oil Revenue
- Overview:
  - Strong public financial management is the first and best solution to challenges posed by volatile oil prices and dependence on oil revenue.
  - Administrative and institutional capacity is limited in many sub-Saharan oil-producing countries.
  - Compensatory measures used include fiscal rules and fiscal responsibility legislation, oil funds, and budgetary oil prices.
- Role of special fiscal institutions:
  - Ossowski et al. (2008) note special fiscal institutions are second-best and present challenges; they must operate transparently and be supported by effective institutions.
- Types and key features:
  - Fiscal rules and fiscal responsibility legislation:
    - Designed to bind government fiscal behavior; sometimes enshrined in law, sometimes guidelines; may include quantitative indicators or benchmarks for transparency and accountability.
    - Experience limited and not uniformly successful.
  - Oil funds:
    - Operational objective: smooth flow of oil revenue to budget; policy objective: smooth government expenditure for economic stability.
    - Some funds have long-term savings objective.
    - Ossowski et al. (2008): 21 oil funds in a sample of 31 oil-producing countries; two in sub-Saharan Africa (Equatorial Guinea and Gabon).
    - For effectiveness, funds should be integrated into annual budgets, not have autonomy over use of resources, and have governance/transparency mechanisms.
  - Budgetary oil price:
    - Use of a conservative oil price or revenue in budget projections; determination methods vary (negotiation, prudent assumptions, futures prices, or artificially low prices).

### Deterioration in the Economic Outlook, 2009–2013
- World Economic Outlook projections used: October 2008 and April 2009.
- Oil prices (US$ per barrel) baseline values shown:
  - Oct. 2008 WEO (memorandum): 100.50, 102.75, 103.00, 103.00, 103.00
  - April 2009 WEO: 52.00, 62.50, 67.50, 70.50, 72.50
  - Difference (2)-(1): -48.50, -40.25, -35.50, -32.50, -30.50
- Key cross-country projected changes (difference April-2009 vs Oct-2008) for 2009–2013 include:
  - Non-oil real GDP growth (annual percent change)
  - Total revenue (percent of non-oil GDP)
  - Primary balance (percent of non-oil GDP)
- Country highlights:
  - Congo: plunge in oil prices projected to lower the primary surplus by an average of 100 percent of non-oil GDP for 2009–13.
  - Angola (difference April-09 minus Oct-08 for 2009–2013): Non-oil real GDP growth differences: -2.2, -0.1, -0.4, -0.3, -0.2; Total revenue differences: -42.2, -42.2, -24.2, -20.7, -16.4; Primary balance differences: -45.3, -43.7, -25.9, -22.4, -17.5.
- Memorandum: projections beyond 2008 are based on the April 2009 World Economic Outlook.

#### Fiscal Sustainability Ratios and Vulnerability (2008 vs 2011)
- Fiscal sustainability ratios: ratio of the implied sustainable non-oil primary balance to the actual (2008) and projected (2011) non-oil primary balance.
  - Interpretation: countries below 1 would need to adjust to move toward sustainability.
  - Countries above the 45-degree line show a projected improvement between 2008 and 2011.
- Aggregate findings:
  - Only Gabon is expected to have a sustainable fiscal stance over the medium term.
  - Congo and Nigeria show some improvement.
  - Remaining countries generally follow an unchanged fiscal policy.
- Vulnerability and near-term adjustment:
  - Overall balance for central government in 2009 relative to gross reserves (end-2008) and change in non-oil primary deficit 2008–09 (in percent of GDP):
    - Equatorial Guinea and Gabon expected to have an overall surplus in 2009.
    - Five countries expected to have sizable fiscal deficits relative to their gross international reserves (close to 40 percent in the case of Angola).
    - All eight countries are expected to see higher non-oil primary deficits in 2009 compared with 2008 as oil prices collapsed.
  - Conclusion: Little evidence of substantial fiscal adjustments in response to lower oil prices and lower oil wealth.

### Fiscal Rules for Sustainability (three benchmark models)
- Focus metric: non-oil primary balance.
- Three fiscal-rule models analyzed:
  - Bird-in-hand:
    - Government converts oil resources into financial assets and commits to spend each year only the projected return on those assets.
    - Preserves oil wealth indefinitely; presumes overall budget would not fall into deficit.
  - Balanced budget:
    - Government balances the budget over the relevant horizon, using up each year’s projected oil revenue.
    - Leads to an annual non-oil deficit equivalent to the amount of oil revenue.
  - Constant real expenditure (permanent income):
    - Government spends only the permanent (annual) income from the net present value of future oil revenue, preserving net worth and maintaining constant real expenditure beyond the lifetime of reserves.
    - Micro-foundation: Milton Friedman’s permanent income hypothesis.
- Mathematical formulation (as presented):
  - Intertemporal optimization problem: Max Σ_{t=0}^{∞} β^t U(G_t) subject to B_t = R B_{t-1} + G_t - T_t - Z_t and lim_{s→∞} B_s = 0.
  - Euler equation (assuming βR = 1): U'(G_t) = βR U'(G_{t+1}), implying G_t constant (G_t = Ḡ).
  - Permanent-income expression: Ḡ = Σ_{i=0}^{N} [T_{t-1+i} + r/R R Z_{t-1-i}] (formula as presented in text).

### Underlying Assumptions for Sustainability Estimates
- Oil reserves: analysis restricted to proven reserves; IMF staff and authorities estimate about 52 billion barrels for the countries considered. Gas reserves excluded due to lack of comparable data.
- World oil prices:
  - Baseline assumption: average price per barrel increases from US$52.00 in 2009 to US$74.75 in 2014.
  - Long term: real world oil price remains constant at the 2014 level.
  - Sensitivity: two high-price scenarios (oil prices 20 percent and 50 percent above baseline) and two low-price scenarios (oil prices 20 percent and 50 percent below baseline).
- Common macroeconomic assumptions:
  - Non-oil sector real growth rate: 4.0 (percent)
  - Real interest rate: 4.0 (percent)
  - Population growth: 2.5 (percent)
  - Starting balance of oil funds as of end-2008 ($): 0.0
  - World oil prices (US$ per barrel) 2009-14: 52.00-74.75
  - Real prices 2015-48: constant at the 2014 level
  - Discount to world oil prices: 10.0 (percent)
  - CPI inflation in advanced economies 2009-14: 0.1-1.68; 2015-48: 1.68
- Rationale: a homogeneous set of assumptions isolates impact of initial conditions (relative importance of non-oil sector, fiscal stance, oil reserves) across the eight countries.

### Estimates of Long-Term Fiscal Sustainability — Baseline Results
- General conclusions:
  - As a group, the fiscal stance of the eight oil-producing countries in sub-Saharan Africa for 2005–08, as world oil prices rose, is far from sustainable; results vary widely by country.
  - Findings robust across the choice of fiscal policy rule: bird-in-hand (conservative, spend only projected annual return with assumed real return of 4 percent), balanced-budget (spend projected oil revenue), and constant real expenditure.
- Country-level summary:
  - For every country except Gabon, the non-oil fiscal deficit for 2005–08 was above the sustainability estimate produced by the four fiscal rules.
  - Gabon’s fiscal stance could be considered sustainable if the budget were balanced (noting this is an extreme position).
  - Côte d’Ivoire: described as "close to sustainable" — a non-oil primary deficit that could be maintained after oil reserves are depleted.
  - Angola, Chad, Congo, Equatorial Guinea, and Nigeria: "currently very far" from broad interpretations of fiscal sustainability.
    - Angola:
      - Sustainable and spendthrift fiscal rule would position the non-oil primary deficit at about 19 percent of non-oil GDP.
      - A thrifty rule would lower that deficit to about 9 percent of non-oil GDP.
      - Current non-oil primary deficit is about 60 percent of non-oil GDP.
    - Congo: current fiscal stance is about 30 percent of non-oil GDP above the sustainable level (based on the average of four fiscal rules).
    - Equatorial Guinea: current fiscal stance is about 44 percent of non-oil GDP above the sustainable level.
- Conservative (permanent-income) estimates:
  - Range under constant real-wealth rule: 0.4 percent of non-oil GDP (Cameroon) to 9½ percent (Congo).
  - Simple average for the eight countries: about 5 percent of non-oil GDP.
  - The average deficit for 2005–08 was 30 percent of non-oil GDP.
- Short- to medium-term comparisons:
  - Under the constant real oil wealth rule, only Gabon is at a sustainable level.
  - Non-oil primary deficits in Nigeria and Angola are about 10 percentage points above the sustainable level.
  - Most countries are close to or smaller than the sustainable level under the balanced-budget rule, but far from sustainable under three more conservative fiscal rules.
- Tradeoff across rules (unweighted average across countries):
  - Balanced-budget rule:
    - Largest near-term spending room; unweighted average sustainable non-oil primary deficit of more than 32 percent of non-oil GDP for early periods.
    - Leads to rapid depletion of oil wealth; toward end of projection sustainable deficit falls to less than 2 percent of non-oil GDP.
    - Implies large required adjustments and high volatility of fiscal expenditure across periods.
  - More conservative rules:
    - Lower near-term consumption but faster accumulation of savings from oil revenue.
    - Sustainable non-oil primary deficit higher in outer years and evolves more smoothly.

### Wider Resource-Base Considerations (Nigeria example)
- Nigeria reserves and probable reserves (billions of barrels, oil-equivalent):
  - Proven oil reserves: 36.41
  - Proven gas reserves: 34.00
  - Probable oil reserves: 18.59
  - Probable gas reserves: 19.50
  - Note: "1 trillion cubic feet of gas reserves = 5.61 billions of barrels of oil equivalents."
- Impact on sustainable non-oil primary deficit (2009–48), constant real-wealth rule:
  - Proven oil only: average sustainable non-oil primary deficit of 14 percent of non-oil GDP.
  - Proven oil and gas: increases to about 26 percent of non-oil GDP.
  - Proven oil and gas + 50% of probable oil reserves: surpasses 32 percent of non-oil GDP (slightly below 2005–08 average).
- Balanced-budget rule:
  - Nigeria’s current non-oil primary deficit could be considered sustainable if proven gas reserves are accounted for.
- Caution: even with expanded reserves included, current non-oil primary deficit remains well above sustainable levels under conservative rules; risks and uncertainty in developing probable reserves remain.

### Sensitivity Analysis — World Oil Prices
- Static relationship: a parallel shift in oil-price path shifts sustainable non-oil primary deficit in the same direction and with about the same magnitude.
  - Example: Congo baseline average sustainable non-oil primary deficits for 2009–48 ≈ 19 percent of non-oil GDP; with oil prices 50 percent higher, average rises close to 29 percent.
- Overall finding: unsustainable fiscal stances persist across price scenarios; Gabon exception where oil prices 50 percent above baseline could render fiscal position sustainable for the whole projection period.

### Sensitivity Analysis — Real Interest Rates
- Higher real returns on financial assets imply lower saving required to sustain a permanent income stream and thus a higher sustainable non-oil primary deficit.
- Scenario: lowering real interest rate to 3 percent from baseline 4 percent.
  - Result: a 1 percentage point reduction in real interest rate lowers the sustainable non-oil primary deficit by some 3 percentage points under the constant real per capita oil wealth rule.
  - Balanced-budget rule: no impact.

### Oil-Price Uncertainty — Monte Carlo Simulation Example (Congo)
- Simulation setup (mean-reversion process):
  - P2009 = $52.00
  - P_ (equilibrium average 2009–14) = $66.63
  - β = 0.333
  - σ = 7.19
- Key observations:
  - Large uncertainty in estimates of Congo’s sustainable non-oil primary deficit:
    - 90 percent confidence interval (P5-95) for 2009: 23–35 percent of non-oil GDP.
    - 95 percent confidence interval (P2.5-97.5) for 2009: 22–36 percent of non-oil GDP.
    - Median (P50) estimates for 2009: 2–9 percent of non-oil GDP (similar to baseline).
  - Uncertainty declines over time: 95 percent interval spans 14 percent of non-oil GDP in 2009, but only 3 percent in 2048.
  - Conclusion: introducing randomness to future oil prices does not change assessment that Congo’s current fiscal stance is unsustainable:
    - Average non-oil primary deficit of 48 percent of non-oil GDP for 2004–08 is well above sustainable levels covered by the 95 percent confidence interval.
    - Probability that future oil prices will be high enough to make Congo’s current non-oil primary deficit sustainable is "practically zero."

### Summary Findings
- Main sources of variability and uncertainty in long-term fiscal sustainability estimates: simplifying assumptions, country-specific factors not modeled, oil prices, and production/reserve profiles.
- Empirical snapshot for the eight countries:
  - The eight countries did not fully use the 2005–08 oil-price boom to consolidate fiscal positions.
    - Non-oil primary deficits increased in five countries; adjustments in the other three were relatively small.
    - Indicates repetition of boom-bust cycle and limited improvement in public financial management during spending increases.
  - Medium-term outlook points to some fiscal adjustment in the right direction across these countries.
  - Even under an extreme spendthrift/balanced-budget assumption, only Cameroon and Côte d’Ivoire are relatively close to broad notions of sustainability; others remain some distance away.
  - Conclusions robust to a wide range of oil price projections, changes in real interest rate, and to introducing oil-price uncertainty (example: Congo).

### Policy Implications and Recommendations
- Step up fiscal consolidation:
  - With volatile world oil prices and relatively short production profiles, most sub-Saharan African oil producers should intensify efforts to consolidate fiscal positions to reduce the probability of abrupt adjustment as oil production winds down.
  - Sustained consolidation would reduce the probability of a return to debt distress should oil prices trend downward.
- Improve management of oil wealth:
  - Strengthen public financial management to ensure resources are spent effectively.
  - Develop special fiscal institutions that have been useful elsewhere (e.g., institutional arrangements for saving and managing resource revenue).
- Broaden and strengthen domestic revenue mobilization:
  - Consolidation toward long-term sustainability should address both spending and revenue sides.
  - Domestic revenue mobilization is generally inadequate across the group and more domestic revenue would help offset uncertainty from heavy reliance on oil revenue and would be needed in the post-production era when oil resources run dry.

*Source: IMF staff paper (content unit: _wp09174 - References.......................................................................................40).*

### References.......................................................................................40

### _wp09174 - References.......................................................................................40

### I. Introduction
- Scope: analysis limited to eight oil-producing countries in sub-Saharan Africa: Angola, Côte d’Ivoire, Nigeria; and, in the Gulf of Guinea, Cameroon, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.
- Objective: gauge fiscal vulnerability and sustainability in managing exhaustible oil wealth and analyze challenges from oil price volatility.
- Focus indicator: the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments influence long-term fiscal sustainability under several models of fiscal rules.
- Research strategy: apply the same simplifying assumptions and models to each of the eight countries to allow comparative assessment.
- Motivations and preliminary observations:
  - The global financial crisis elevates the risk of setbacks if growth slows further, narrowing room to maneuver given lack of prior fiscal adjustment.
  - Decline in oil prices versus possible need for fiscal stimulus creates a trade-off: falling oil revenues mean some fiscal adjustment is necessary to avoid fiscal deterioration.
  - Low world oil prices and minimal global activity could dampen investment in the oil sector; without new discoveries, production horizons for six of the eight countries are relatively short, increasing fiscal vulnerability.
  - Procyclical fiscal policy has generally been the norm in most sub-Saharan oil-producing countries.

### II. Background
- Heterogeneity across the eight countries in productive capacity, oil reserves, and the importance of oil to the economy.

H3: A. Oil Resources
- Collective production: about 1.9 billion barrels of oil in 2008; projected to increase to nearly 2 billion barrels in 2009 (Table 1).
- Share of world production: about 5 percent.
- Production concentration:
  - Nigeria accounted for more than 40 percent of the total over the last several years.
  - Angola, Congo, Equatorial Guinea, and Gabon about 5–6 percent each.
  - Cameroon, Chad, and Côte d’Ivoire about 1–2 percent each.
- Proven oil reserves (defined as oil that has a 90 percent probability of being extracted): estimated at about 52 billion barrels in the group for 2009.
  - Nigeria: estimated 36.4 billion barrels, 70 percent of the total (Figure 1).
  - Angola: about 18 percent.
  - Five CEMAC countries: about 11 percent.
  - Côte d’Ivoire: remaining 1 percent.
- Projected production horizons (based on proven reserves and current production capacity):
  - Nigeria: 50 years or more.
  - Gabon: about 32 years, ending in 2041.
  - Other countries: horizons extending until about 2030–35, with Angola, Cameroon, and Congo tapping out earliest.
- Note: analysis limited to proven oil reserves; natural gas reserves not included though they may be significant.

H3: B. Oil Dependence
- Real non-oil GDP growth, average annual growth (2005–08) (Table 2):
  - Angola: Non-oil GDP 21.9; Oil GDP 15.0; Overall GDP 17.9
  - Cameroon: Non-oil GDP 3.7; Oil GDP -1.5; Overall GDP 3.4
  - Chad: Non-oil GDP 3.7; Oil GDP -9.9; Overall GDP 0.0
  - Congo, Republic of: Non-oil GDP 6.0; Oil GDP 1.5; Overall GDP 3.3
  - Côte d'Ivoire: Non-oil GDP 1.5; Oil GDP 1.7; Overall GDP 1.5
  - Equatorial Guinea: Non-oil GDP 31.0; Oil GDP 4.3; Overall GDP 11.0
  - Gabon: Non-oil GDP 4.7; Oil GDP 0.8; Overall GDP 2.9
  - Nigeria: Non-oil GDP 8.9; Oil GDP -4.5; Overall GDP 6.0
- Importance of oil sector (2006–08, Table 3) — selected indicators:
  - Oil sector accounts for majority of economic activity in four of eight countries; exceeding two-thirds in Equatorial Guinea and Congo.
  - Nigeria: oil sector about one-third of total economy.
  - Cameroon: about 10 percent oil GDP share.
  - Côte d’Ivoire: less than 4 percent oil GDP share.
  - Exports and revenue dependence:
    - For six countries, oil accounts for more than two-thirds of total exports.
    - For five countries, oil accounts for more than two-thirds of total revenue.
    - Angola and Equatorial Guinea: ratio of oil exports to total exports above 90 percent.

### III. Recent Fiscal Developments and Prospects
H3: A. History Repeats Itself
- World oil prices run-up (2005–2008): prices doubled in nominal terms, from an average of US$53.35 to US$102.25 (Figure 3).
- Fiscal response during the run-up:
  - Opportunity to consolidate fiscal positions largely missed; fiscal positions moved procyclically and non-oil deficits widened.
  - Some reduction in external debt in Nigeria and Gabon, but no widespread fiscal consolidation.
- Ability to smooth spending:
  - Correlation coefficients of total government expenditure and world oil price (1970–2008, Table 4):
    - Angola: 0.99 (data for 1996-2008)
    - Cameroon: 0.73
    - Chad: 0.86
    - Congo, Republic of: 0.78
    - Côte d'Ivoire: 0.73
    - Equatorial Guinea: 0.90
    - Gabon: 0.65
    - Nigeria: 0.82
  - Interpretation: positive correlation above 0.7 for all but Gabon indicates limited smoothing and procyclical spending.
  - Thornton (2008) evidence: statistically significant response of real government consumption to cyclical upturn for all in the group except Angola (Angola not included in Thornton’s sample); for Côte d’Ivoire, Congo, and Equatorial Guinea the response was more than proportionate.
- Spending vs. oil revenue growth (2006–08, Figure 4):
  - Growth in current spending outpaced growth in oil revenue in Angola, Cameroon, Chad, Equatorial Guinea, and Nigeria.
  - High rates of growth in capital outlays in Angola, Cameroon, and Equatorial Guinea.
  - Better control of current spending relative to oil revenue increases in Côte d’Ivoire, Congo, and Gabon.
- Non-oil primary balance (percent of non-oil GDP, Table 5) — 2006–08:
  - Angola: -50.3 (2006), -56.9 (2007), -61.3 (2008)
  - Cameroon: -1.4 (2006), -2.8 (2007), -7.8 (2008)
  - Chad: -21.2 (2006), -26.9 (2007), -30.1 (2008)
  - Congo, Republic of: -53.9 (2006), -59.0 (2007), -47.8 (2008)
  - Côte d'Ivoire: -3.1 (2006), -1.9 (2007), -4.5 (2008)
  - Equatorial Guinea: -29.0 (2006), -34.9 (2007), -50.3 (2008)
  - Gabon: -15.7 (2006), -10.4 (2007), -12.0 (2008)
  - Nigeria (consolidated government): -33.7 (2006), -34.7 (2007), -31.8 (2008)
  - Observations:
    - Fiscal position worsened as oil prices soared in Angola, Cameroon, Chad, Côte d’Ivoire, and Equatorial Guinea.
    - Angola: non-oil primary deficit higher by the equivalent of 11 percent of non-oil GDP (2008 vs 2006).
    - Equatorial Guinea: deficit higher by about 20 percent of non-oil GDP (2008 vs 2006).
    - Congo: non-oil primary deficit declined (consolidation equivalent to about 6 percent of non-oil GDP).

H3: Public Financial Management and Institutions
- Limited improvement in public financial management and special fiscal institutions despite increased spending.
- Quality of public sector management and institutions (2005–07, Table 6):
  - Six of eight countries rank below the average of all IDA-eligible countries on World Bank-derived quality indices.
  - Limited progress since 2005 in areas including budget and financial management, efficiency of revenue mobilization, quality of public administration, transparency, accountability, and corruption in the public sector.
- Selected indicators of institutional quality, 2000 and 2007 (Table 7):
  - Political risk (100=low, 0=high), percentile rank and government effectiveness (score -2.5 to +2.5) show six countries rank low on political risk and government effectiveness.
  - Examples (percentile rank; score):
    - Angola 2000: 47.0; -1.39; 2007: 57.5; -1.16
    - Cameroon 2000: 56.0; -0.75; 2007: 66.0; -0.87
    - Congo, Rep. of 2000: 52.0; -1.52; 2007: 55.0; -1.34
    - Equatorial Guinea and Chad: many entries n.a. for 2000; 2007 percentile ranks low with government effectiveness around -1.37 to -1.45.
  - Memorandum: Norway 2000: percentile rank 89.0; score 1.95; 2007: 89.5; score 2.12.

H3: Special Fiscal Institutions and Reform Efforts
- As a second-best option to tighten public financial management, many countries have turned to special fiscal institutions (fiscal rules, fiscal responsibility legislation, oil funds, budgetary oil prices).
- Evidence and use:
  - Ossowski et al. (2008) find special fiscal institutions can help manage oil wealth but are most effective where fiscal prudence existed prior to creation.
  - Sub-Saharan oil producers have limited and mixed experience with special fiscal institutions:
    - No country uses explicit fiscal rules or fiscal responsibility legislation (with fiscal stance in Congo and Equatorial Guinea reportedly guided by a model based on the permanent income hypothesis).
    - Oil-wealth funds exist only in Equatorial Guinea and Gabon (Funds for Future Generations).
    - Angola, Cameroon, and Nigeria budget an oil price and save oil revenue above the reference price in extra-budgetary accounts.
    - In Nigeria, proceeds from such savings intended for public investments agreed between federal and state governments.
- Medium-term fiscal frameworks:
  - Only Nigeria uses a medium-term expenditure framework to link budget with longer-term policies and fiscal sustainability; Congo is working on one.
- Revenue mobilization efforts:
  - All eight countries place importance on accelerating domestic revenue mobilization to reduce dependence on oil revenue.
  - Projected increases in non-oil revenue as a proportion of total revenue are planned mainly through tax and customs administration reform and tax policy measures.

### Key Figures and Tables Mentioned
- Figures (listed): Proven Oil Reserves, 2009; Oil Production Projections, 2005–48; Nominal and Real Crude Oil (Spot) Prices, 1970–2014; Change in Revenue and Government Spending, 2006–08; Deteriorating Economic Outlook, 2009–13; Fiscal Sustainability Ratios, 2008 vs. 2011; Vulnerability and Fiscal Adjustment, 2008–09; Oil Price Assumptions, 2005–48; Average Sustainable Non-Oil Primary Deficit Under Different Fiscal Rules, 2009–48; and others up to Republic of Congo scenario charts.
- Tables (selected): Table 1 Oil Production, 2007–09; Table 2 Real GDP Growth, 2005–08; Table 3 Size of the Oil Sector, 2006–08; Table 4 Correlation Between World Oil Prices and Government Spending, 1970–2008; Table 5 Non-oil Primary Balances, 2006–08; Table 6 Quality of Public Sector Management and Institutions, 2005–07; Table 7 Selected Indicators of Institutional Quality, 2000 and 2007; Table 8 Medium-Term Fiscal Strategies; Table 9 Deterioration in the Economic Outlook, 2009–13; Table 10 Estimates of Proven Oil Reserves, 2008–09; Table 11 Long-Term Macroeconomic Assumptions; Table 12 Republic of Congo: Simulation Parameters with Oil Price Uncertainty.

*Source: IMF staff paper (content unit: _wp09174 - References.......................................................................................40).*

### Box 1. Special Fiscal Institutions for the Management of Oil Revenue

### Box 1. Special Fiscal Institutions for the Management of Oil Revenue

### Overview
- Strong public financial management is the first and best solution to the economic and fiscal policy challenges posed by volatile oil prices and dependence on oil revenue.
- Many countries in sub-Saharan Africa, including oil producers, do not manage their public finances well because their administrative and institutional capacity is limited.
- Some oil-producing countries have attempted to compensate for these deficiencies by:
  - setting fiscal rules and passing fiscal responsibility legislation;
  - establishing oil funds;
  - using budgetary oil prices.

### Role of special fiscal institutions
- Ossowski et al. (2008) note that special fiscal institutions are second-best to careful public financial management and present challenges in their own right.
- The main challenge is to ensure that these institutions operate in a transparent and accountable manner and are designed and supported by other effective institutions.

### Types of special fiscal institutions and key features
- Fiscal rules and fiscal responsibility legislation:
  - Designed to shape the formulation and execution of fiscal policies by binding the hands of the government or fiscal agent.
  - Sometimes enshrined in law, but often presented merely as guidelines.
  - Some rules and legislation provide for quantitative indicators; others establish benchmarks for transparency and accountability.
  - Experience with fiscal-related rules or legislation is relatively limited, but they do not seem to have been highly successful (Ossowski et al., 2008).

- Oil funds:
  - The operational objective is typically to smooth the flow of oil revenue to the budget; the policy objective is to support economic stability by smoothing government expenditure.
  - Some funds also have a long-term savings objective.
  - Ossowski et al. (2008) report 21 oil funds in a sample of 31 oil-producing countries, of which two were in sub-Saharan Africa (Equatorial Guinea and Gabon).
  - For effectiveness, these funds should:
    - be integrated into annual budgets;
    - not have autonomy over the use of their financial resources;
    - have mechanisms in place to ensure good governance and transparency.

- Budgetary oil price:
  - Involves use of a conservative oil price or revenue in budget projections.
  - Prices are determined in a variety of ways: negotiated among levels of government (as in Nigeria), based on prudent assumptions or futures prices, or are artificially low.

*Source: IMF working paper content.*

### 2013. The more recent projection is an average primary deficit of about 3 percent of

### _wp09174 - 2013. The more recent projection is an average primary deficit of about 3 percent of

### Deterioration in the Economic Outlook, 2009–2013 (Oil-producing Sub-Saharan Africa)
- World Economic Outlook projections used: October 2008 and April 2009.
- Oil prices (US$ per barrel) baseline values shown:
  - Memorandum item World oil price (US dollars): 100.50, 102.75, 103.00, 103.00, 103.00 (Oct. 2008 WEO)
  - April 2009 WEO: 52.00, 62.50, 67.50, 70.50, 72.50
  - Difference (2)-(1): -48.50, -40.25, -35.50, -32.50, -30.50
- Key cross-country projected changes (difference April-2009 vs Oct-2008) for 2009–2013 are reported for:
  - Non-oil real GDP growth (annual percent change)
  - Total revenue (percent of non-oil GDP)
  - Primary balance (percent of non-oil GDP)
- Highlighted country-specific projection notes:
  - Congo: plunge in oil prices projected to lower the primary surplus by an average of 100 percent of non-oil GDP for 2009–13.
  - Angola example rows (difference April-09 minus Oct-08 for 2009–2013): Non-oil real GDP growth differences: -2.2, -0.1, -0.4, -0.3, -0.2; Total revenue differences: -42.2, -42.2, -24.2, -20.7, -16.4; Primary balance differences: -45.3, -43.7, -25.9, -22.4, -17.5.
- Memorandum: projections beyond 2008 are based on the April 2009 World Economic Outlook.

### Fiscal Sustainability Ratios and Vulnerability (2008 vs 2011)
- Fiscal sustainability ratios computed as: ratio of the implied sustainable non-oil primary balance to the actual (2008) and projected (2011) non-oil primary balance.
- Interpretation:
  - Countries below 1 would need to adjust to move toward sustainability.
  - Countries above the 45-degree line show a projected improvement between 2008 and 2011.
- Aggregate finding from Figure 6:
  - Only Gabon is expected to have a sustainable fiscal stance over the medium term.
  - Congo and Nigeria show some improvement.
  - The remaining countries generally follow an unchanged fiscal policy.
- Vulnerability and near-term adjustment (Figure 7):
  - Overall balance for central government in 2009 relative to gross reserves (end-2008) and change in non-oil primary deficit 2008–09 (in percent of GDP).
  - Equatorial Guinea and Gabon expected to have an overall surplus in 2009.
  - Five countries expected to have sizable fiscal deficits relative to their gross international reserves (close to 40 percent in the case of Angola).
  - All eight countries are expected to see higher non-oil primary deficits in 2009 compared with 2008 as oil prices collapsed.
  - Conclusion: Little evidence of substantial fiscal adjustments in response to lower oil prices and lower oil wealth.

### Fiscal Rules for Sustainability (three benchmark models)
- Focus metric: non-oil primary balance.
- Three fiscal-rule models analyzed:
  - Bird-in-hand:
    - Government converts oil resources into financial assets and commits to spend each year only the projected return on those assets.
    - Preserves oil wealth indefinitely; presumes overall budget would not fall into deficit.
  - Balanced budget:
    - Government balances the budget over the relevant horizon, using up each year’s projected oil revenue.
    - Leads to an annual non-oil deficit equivalent to the amount of oil revenue.
  - Constant real expenditure (permanent income):
    - Government spends only the permanent (annual) income from the net present value of future oil revenue, preserving net worth and maintaining constant real expenditure beyond the lifetime of reserves.
    - Micro-foundation: Milton Friedman’s permanent income hypothesis.
- Mathematical formulation (as presented):
  - Intertemporal optimization problem: Max Σ_{t=0}^{∞} β^t U(G_t) subject to B_t = R B_{t-1} + G_t - T_t - Z_t and lim_{s→∞} B_s = 0.
  - Euler equation (assuming βR = 1): U'(G_t) = βR U'(G_{t+1}), implying G_t constant (G_t = Ḡ).
  - Permanent-income expression: Ḡ = Σ_{i=0}^{N} [T_{t-1+i} + r/R R Z_{t-1-i}] (formula as presented in text).

### Underlying Assumptions for Sustainability Estimates
- Oil reserves: analysis restricted to proven reserves; IMF staff and authorities estimate about 52 billion barrels for the countries considered. Gas reserves excluded due to lack of comparable data.
- World oil prices:
  - Baseline assumption: average price per barrel increases from US$52.00 in 2009 to US$74.75 in 2014.
  - Long term: real world oil price remains constant at the 2014 level.
  - Sensitivity: two high-price scenarios (oil prices 20 percent and 50 percent above baseline) and two low-price scenarios (oil prices 20 percent and 50 percent below baseline).
- Common macroeconomic assumptions (Table 11):
  - Non-oil sector real growth rate: 4.0 (percent)
  - Real interest rate: 4.0 (percent)
  - Population growth: 2.5 (percent)
  - Starting balance of oil funds as of end-2008 ($): 0.0
  - World oil prices (US$ per barrel) 2009-14: 52.00-74.75
  - Real prices 2015-48: constant at the 2014 level
  - Discount to world oil prices: 10.0 (percent)
  - CPI inflation in advanced economies 2009-14: 0.1-1.68; 2015-48: 1.68
- Rationale: a homogeneous set of assumptions isolates impact of initial conditions (relative importance of non-oil sector, fiscal stance, oil reserves) across the eight countries.

### Estimates of Long-Term Fiscal Sustainability — Baseline Results
- General conclusions:
  - As a group, the fiscal stance of the eight oil-producing countries in sub-Saharan Africa for 2005–08, as world oil prices rose, is far from sustainable; results vary widely by country.
  - Findings robust across the choice of fiscal policy rule: bird-in-hand (conservative, spend only projected annual return with assumed real return of 4 percent), balanced-budget (spend projected oil revenue), and constant real expenditure.
- Country-level summary:
  - For every country except Gabon, the non-oil fiscal deficit for 2005–08 was above the sustainability estimate produced by the four fiscal rules.
  - Gabon’s fiscal stance could be considered sustainable if the budget were balanced (noting this is an extreme position).
  - The fiscal positions in Cameroon and (in continuation beyond excerpt) other countries are identified as unsustainable under the baseline assumptions.
- Caveats:
  - Estimates subject to considerable uncertainty; based on a homogenous and somewhat “heroic” set of assumptions.
  - Robustness claim supported by similar outcomes across multiple models.
  - Exclusion of gas reserves and using constant non-oil growth abstracts from potential positive feedback from high public investment.
- Methodological note:
  - Permanent-income model estimates lie in the middle between two extremes (balanced-budget and bird-in-hand) and are used for comparisons in Section V.

*Source: IMF staff estimates and projections, World Economic Outlook (October 2008 and April 2009), as presented in the provided IMF working paper content.*

### 4.6 percent (after management costs and inflation).

### 4.6 percent (after management costs and inflation)

### Assessment of fiscal sustainability across countries
- Côte d’Ivoire: described as "close to sustainable" — a non-oil primary deficit that could be maintained after oil reserves are depleted.
- Angola, Chad, Congo, Equatorial Guinea, and Nigeria: "currently very far" from broad interpretations of fiscal sustainability.
  - Angola:
    - Sustainable and spendthrift fiscal rule would position the non-oil primary deficit at about 19 percent of non-oil GDP.
    - A thrifty rule would lower that deficit to about 9 percent of non-oil GDP.
    - Current non-oil primary deficit is about 60 percent of non-oil GDP.
  - Congo: current fiscal stance is about 30 percent of non-oil GDP above the sustainable level (based on the average of four fiscal rules).
  - Equatorial Guinea: current fiscal stance is about 44 percent of non-oil GDP above the sustainable level.
- Conservative estimate (permanent-income model with constant real per capita expenditure):
  - Range for sample under this rule: 0.4 percent of non-oil GDP (Cameroon) to 9½ percent (Congo).
  - Simple average for the eight countries: about 5 percent of non-oil GDP.
  - The average deficit for 2005–08 was 30 percent of non-oil GDP.

### Short- to medium-term adjustments and fiscal-rule comparisons
- Comparing 2005–08 actual non-oil primary deficits to sustainable levels for 2009–14:
  - Under the constant real oil wealth rule, only Gabon is at a sustainable level.
  - Non-oil primary deficits in Nigeria and Angola are about 10 percentage points above the sustainable level.
  - Most countries are close to or smaller than the sustainable level under the balanced-budget rule, but far from sustainable under three more conservative fiscal rules.
- Tradeoff between current and future consumption (unweighted average across countries):
  - Balanced-budget rule:
    - Largest near-term spending room; unweighted average sustainable non-oil primary deficit of more than 32 percent of non-oil GDP for early periods.
    - Leads to rapid depletion of oil wealth; toward end of projection sustainable deficit falls to less than 2 percent of non-oil GDP.
    - Implies large required adjustments and high volatility of fiscal expenditure across periods.
  - More conservative rules:
    - Lower near-term consumption but faster accumulation of savings from oil revenue.
    - Sustainable non-oil primary deficit higher in outer years and evolves more smoothly.

### Wider resource-base considerations (Box 4 — Nigeria)
- Nigeria’s reserves and probable reserves:
  - Proven oil reserves: 36.41 (billions of barrels).
  - Proven gas reserves: 34.00 (billions of barrels, oil-equivalent).
  - Probable oil reserves: 18.59 (billions of barrels).
  - Probable gas reserves: 19.50 (billions of barrels).
  - Note: "1 trillion cubic feet of gas reserves = 5.61 billions of barrels of oil equivalents."
- Impact of including gas and probable reserves on sustainable non-oil primary deficit (2009–48):
  - Under constant real-wealth rule:
    - Proven oil only: average sustainable non-oil primary deficit of 14 percent of non-oil GDP.
    - Proven oil and gas: increases to about 26 percent of non-oil GDP.
    - Proven oil and gas + 50% of probable oil reserves: surpasses 32 percent of non-oil GDP (slightly below 2005–08 average).
  - Under balanced-budget rule:
    - Nigeria’s current non-oil primary deficit could be considered sustainable if proven gas reserves are accounted for.
- Caution: even with proven oil and gas and 50% of probable reserves exploited, Nigeria’s current non-oil primary deficit remains well above sustainable levels under conservative fiscal rules; risks and uncertainty in developing probable reserves remain.

### Sensitivity analysis — world oil prices
- Static relationship: a parallel shift in oil-price path (holding others constant) shifts sustainable non-oil primary deficit in the same direction and with about the same magnitude in percentage terms.
  - Example: Congo baseline average sustainable non-oil primary deficits for 2009–48 ≈ 19 percent of non-oil GDP; with oil prices 50 percent higher, average rises close to 29 percent.
- Overall finding: the unsustainable nature of fiscal stances is not highly sensitive to oil prices compared with the permanent-income model under constant real expenditure.
  - Even with optimistic oil-price assumptions, 2005–08 average non-oil primary deficits in most countries remained far above sustainable levels.
  - Gabon exception: with oil prices 50 percent above baseline, its fiscal position could be considered sustainable for the whole projection period.

### Sensitivity analysis — real interest rates
- Higher real returns on financial assets imply lower saving required to sustain a permanent income stream and thus a higher sustainable non-oil primary deficit.
- Scenario examined: lowering real interest rate to 3 percent (closer to historical real return on US bonds) from baseline 4 percent.
- Results:
  - A lower real interest rate lowers sustainable non-oil primary deficits for all countries.
  - Impact varies by fiscal rule:
    - Balanced-budget rule: no impact (no oil revenue saved each period).
    - Constant real per capita oil wealth rule: a 1 percentage point reduction in real interest rate lowers the sustainable non-oil primary deficit by some 3 percentage points.

### Oil-price uncertainty (Monte Carlo simulation example: Congo)
- Simulation setup (mean-reversion process):
  - P2009 = $52.00 (April 2009 WEO projection for average oil price for 2009).
  - P_ (equilibrium average 2009–14) = $66.63 (April 2009 WEO projection for average oil price over 2009–14).
  - β = 0.333 (one-third of deviation from equilibrium reversed each year).
  - σ = 7.19 (standard deviation of world oil prices over 1980–2004).
- Key observations:
  - Large uncertainty in estimates of Congo’s sustainable non-oil primary deficit:
    - 90 percent confidence interval (P5-95) for 2009: 23–35 percent of non-oil GDP.
    - 95 percent confidence interval (P2.5-97.5) for 2009: 22–36 percent of non-oil GDP.
    - Median (P50) estimates for 2009: 2–9 percent of non-oil GDP (similar to baseline in Section V.A).
  - Uncertainty declines over time as confidence intervals narrow:
    - 95 percent interval spans 14 percent of non-oil GDP in 2009, but only 3 percent in 2048.
    - Rationale: early in projection much oil wealth is yet to be extracted and subject to price uncertainty; later most oil reserves have become financial wealth less affected by price swings.
  - Introducing randomness to future oil prices does not change the assessment that Congo’s current fiscal stance is unsustainable:
    - Average non-oil primary deficit of 48 percent of non-oil GDP for 2004–08 is well above sustainable levels covered by the 95 percent confidence interval.
    - Probability that future oil prices will be high enough to make Congo’s current non-oil primary deficit sustainable is "practically zero."

### Summary findings
- Main sources of variability and uncertainty in long-term fiscal sustainability estimates: simplifying assumptions, country-specific factors not modeled, oil prices, and production/reserve profiles.
- Empirical snapshot for Angola, Cameroon, Chad, Côte d’Ivoire, Gabon, Equatorial Guinea, Nigeria, Republic of Congo:
  - The eight countries did not fully use the 2005–08 oil-price boom to consolidate fiscal positions.
    - Non-oil primary deficits increased in five countries; adjustments in the other three were relatively small.
    - Indicates repetition of boom-bust cycle and limited improvement in public financial management during spending increases.
  - Medium-term outlook points to some fiscal adjustment in the right direction across these countries.
  - Even under an extreme spendthrift/balanced-budget assumption, only Cameroon and Côte d’Ivoire are relatively close to broad notions of sustainability; others remain some distance away.
  - These conclusions are robust to a wide range of oil price projections, changes in real interest rate, and to introducing oil-price uncertainty (example: Congo).

### Policy implications and recommendations
- Step up fiscal consolidation:
  - With volatile world oil prices and relatively short production profiles, most sub-Saharan African oil producers should intensify efforts to consolidate fiscal positions to reduce the probability of abrupt adjustment as oil production winds down.
  - Sustained consolidation would reduce the probability of a return to debt distress should oil prices trend downward.
- Improve management of oil wealth:
  - Strengthen public financial management to ensure resources are spent effectively.
  - Develop special fiscal institutions that have been useful elsewhere (e.g., institutional arrangements for saving and managing resource revenue).
- Broaden and strengthen domestic revenue mobilization:
  - Consolidation toward long-term sustainability should address both spending and revenue sides.
  - Domestic revenue mobilization is generally inadequate across the group and more domestic revenue would help offset uncertainty from heavy reliance on oil revenue and would be needed in the post-production era when oil resources run dry.

*Source: IMF working paper content provided in the supplied PDF excerpt.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09174.pdf_