## _wp14121 - 1.5 percent per year until they reach 150 dollars per barrel (projected by the U.S. Energy

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### Mineral-wealth valuation and key assumptions
- Proven reserves of oil are assumed to last for 15 years at the projected levels of production in 2018 and no significant discovery is assumed to take place in the period. The production decline is assumed to be gradual and starts after year ten and continues until year twenty.  
- Bauxite-related fiscal revenues have declined to low levels. Bauxite prices are assumed to follow WEO projections until 2018, with volumes similar to current levels; beyond that, revenues from bauxite as a share of GDP stay at 2018 levels up to 2032 and then taper off to zero by 2050.  
- Government tax rates are assumed constant at the 2012 level.  
- Under those parameters the value of the mineral resources for the central government is calculated as the discounted value of future revenue flows using a 4 percent real discount rate, which yields US$ 5.5 billion, just above the current GDP.  
- Average Gold Price reported: US$ 1485.0 US$/ounce. Average Oil Price reported: US$ 98.8 US$/barrel.

### Permanent Income Hypothesis (applications and scenarios)
- Strict permanent income rule: flows available for consumption should match the returns to the discounted value of the project’s future flows so capital is preserved forever.  
- Alternative, less stringent rules allow graduating spending over time to permit a gradual transition as resources are depleted and to target sustainable non-mineral fiscal balances.  
- Scenarios described:
  - Passive scenario: no near-term action; mineral revenues dwindle to zero in about 20 years, forcing corrective action later (non-mineral deficit forced to be near zero or public debt rises sharply).  
  - Early tightening to a non-mineral deficit target of about 5 percent of GDP: would enable consumption of mineral revenues forever (permanent income hypothesis scenario).  
  - Tightening to a target of 6 percent of GDP: would exhaust mineral wealth at around 2060, but annual nominal consumption of mineral revenue at that point would be a small share of GDP, requiring only minor offsetting action.  
- Given the large gap between the fiscal outcome in 2012 (non-mineral deficit of 15¼ percent of GDP) and sustainable paths, early and substantial consolidation is considered warranted.

### Inter-Temporal Budget Constraint and sustainability-gap measurement
- Government inter-temporal budget constraint summarized (equations (1)–(5) in source) — present-value condition that future primary surpluses must be sufficient to pay off initial debt.  
- Output-gap interaction: the passive path for the primary balance is influenced by the evolution of the output gap; structural primary balance modeled as t_p* = t_p - ∂ t_O (equation (6)).  
- Operational treatment: assume a steady state is achieved at some future period τ, beyond which the primary balance stays constant; this allows converting infinite sums into finite geometric progression terms.  
- Main quantitative findings:
  - Estimated sustainability gap for Suriname is about 14 percent of GDP. This large gap primarily reflects the outlook for mineral revenue, expected under the conservative baseline to decline from around 11 percent of GDP in 2012 to zero over the long run, and the large fiscal deficit (4 percent of GDP in 2012).  
  - Using a less conservative assumption where the nominal mineral revenue projected for 2018 is maintained thereafter only slightly reduces the sustainability gap to 13¾ percent of GDP.  
- No-corrective-measures scenario consequences:
  - Public debt would mathematically rise to over 700 percent of GDP by 2060.  
  - The primary balance is projected to decline by 11½ percentage points to a deficit of 14½ percent of GDP.  
  - The overall fiscal deficit deteriorates by over 74 percentage points to around 78 percent of GDP.  
  - Result: interest payments rise exponentially and would force abrupt fiscal tightening well before such debt levels materialize.  
- Opposite extreme (immediate full adjustment) outcome:
  - Gross debt is driven to zero by 2015, with a substantial buildup of government assets thereafter to help offset depletion of natural resource revenues.

### Optimal fiscal consolidation paths (framework)
- Authorities’ objective: minimize a quadratic loss function over an infinite horizon that penalizes deviations of the output gap and the sustainability gap (equation (9)).  
- Output-gap dynamics: O_t+1 = λ(1)O_t - ξ f_t (equation (10) formulation in source).  
- Sustainability-gap dynamics with discretionary fiscal measures: S_t evolves according to S_t = ((1+g)/(1+r)) S_{t-1} - ((1+g)/(1+r)) f_t (equation (12) summarized).  
- Key theoretical result: when the discount rate exceeds the GDP growth rate, delaying corrective action is costly — the sustainability gap grows over time absent consolidation.  
- Policy implication: optimal fiscal consolidation is front-loaded when the sustainability gap is large relative to the output gap; the optimal fiscal consolidation pace is linear in the output and sustainability gaps (equation (13) specification), with coefficients determined by model parameters (see source equations (14) for derivation).

### Calibration for Suriname and model predictions
- Calibration values used:
  - Initial sustainability gap as of 2012: 13.9 percent of GDP.  
  - Estimated output gap in 2012: 0.5 percent of GDP.  
  - λ calibrated to 0.5 (implying an output gap of 2 percent of GDP is eliminated after six years absent fiscal measures).  
  - Fiscal multiplier: 0.5.  
  - Nominal discount rate: 10 percent.  
  - Long run average nominal GDP growth rate: 9¼ percent.  
  - Authorities’ revealed-preference weight parameter α = 0.89 (based on 2011 structural fiscal consolidation of 4 percent of GDP).  
- Model predictions for optimal path:
  - Fiscal tightening of about 5 percent of GDP in 2013 (front-loaded adjustment).  
  - Headline overall balance projected to improve by about 3 percent of GDP in 2013 (initial impact partly offset by worsening output gap on revenues).  
  - Over the medium term (by 2018) optimal structural fiscal adjustment totals 10½ percent of GDP, which would offset a projected 3½ percent of GDP decline in mineral revenues over the period.  
  - By 2018 headline fiscal balance projected to be a surplus of 2½ percent of GDP.  
  - Non-mineral deficit declines to 5¼ percent of GDP in 2018.  
  - Over the long run the sustainability gap declines steadily and is eliminated by (text truncates at end of the source).

### C. Sensitivity of Model Predictions
- Context:
  - Figure 2 presents sensitivity tests showing how the optimal tightening predicted by the model for 2013 varies when initial conditions or parameter values are varied.  
  - The optimal tightening for 2013 under the assumed parameter values and initial conditions is 5 percent of GDP (the figure footnote reports a baseline optimal fiscal tightening for 2013 as 5.1 percent of GDP).  
- Fiscal multiplier:
  - Optimal tightening varies strongly with the fiscal multiplier, particularly for values below one.  
  - Over the range considered (0-2), optimal tightening is highest with a zero multiplier and declines in a monotone but nonlinear fashion as the multiplier increases.  
  - Examples:
    - If the multiplier were 0.7 rather than 0.5, optimal tightening in 2013 would be 3¼ percent of GDP rather than 5 percent of GDP.  
    - With a multiplier of 0.3 the optimal tightening for 2013 would be 8½ percent of GDP.  
- Country preferences (preference weight on output gap):
  - The preference parameter is 0.89, tilted in favor of closing the output gap rather than the sustainability gap.  
  - In the neighborhood of 0.89 the curve is quite steep; beyond 0.9 sensitivity intensifies.  
  - Example: with alpha at 0.93, the optimal tightening for 2013 would be 3½ percent of GDP.  
- Resilience of the economy (autoregressive parameter on the output gap, lambda):
  - Varying lambda between 0 and 1 (0 = instant adjustment) shows the optimal tightening for 2013 is not very sensitive to this parameter.  
  - Variation across the range is about ¾ percent of GDP.  
- Initial output gap:
  - Optimal tightening is moderately sensitive to revisions in the initial output gap.  
  - Example: if the initial output gap were -0.5 percent instead of the assumed 0.5 percent, the optimal tightening for 2013 would decline to 4½ percent of GDP.  
- Initial sustainability gap:
  - The sustainability gap estimate has significant uncertainty; sensitivity is moderate with a near-linear curve flatter than the 45 degree line.  
  - Example: if the initial sustainability gap were 10 percent of GDP rather than the estimated 14 percent, the optimal tightening for 2013 would be 3¾ percent of GDP rather than 5 percent of GDP.  
- Interest rate and GDP growth rate:
  - Long-run parameters such as the nominal discount rate and average nominal GDP growth rate have only a modest impact on the optimal tightening for 2013.  
- Baseline parameter values and initial conditions reported in Figure 2 footnote:
  - Fiscal multiplier = 0.5  
  - Preference weight = 0.89  
  - Autoregressive parameter for output gap = 0.5  
  - Discount rate = 10 percent  
  - GDP growth rate = 9.2 percent  
  - Initial output gap = 0.5 percent  
  - Initial sustainability gap = 14.0 percent of GDP  
  - Baseline optimal fiscal tightening for 2013 = 5.1 percent of GDP

### Figures and Illustrations (summary of key depicted trajectories)
- Fiscal sustainability trajectories (Figure 1 series) illustrate alternative paths for:
  - Structural Primary Balance Excluding Mineral Revenue  
  - Overall Balance Excluding Mineral Revenue  
  - Gross Central Government Debt  
  - Primary Balance  
  - Overall Balance  
  - Net Central Government Debt
- Scenarios depicted include:
  - Immediate full adjustment  
  - "Optimal" adjustment path  
  - No measures  
  - Baseline 1/ (baseline incorporates staff medium term baseline projections up to 2018 and assumes no further fiscal adjustment thereafter)
- Notes on debt presentation:
  - Net debt is calculated as gross debt minus the liquid assets of central government in the initial period (2013), estimated as the sum of US$20 million set aside for initial deposit into the Sovereign Wealth Fund and US$375 million of funds borrowed for use in purchasing equity stakes in two gold mining ventures.  
  - Negative debt reflects the accumulation of assets.

### V. Final Remarks — Findings and Policy Implications
- Main findings:
  - Both methodologies indicate a large fiscal adjustment need over the medium and long run.  
  - The estimated sustainability gap is 14 percent (close to the size of the non-mineral deficit for 2012 that needs to be fully offset as mineral revenues dwindle).  
- Comparison of approaches:
  - Permanent income hypothesis approach envisages bulk of adjustment in a single step by choosing a fixed nominal amount of mineral revenues to consume over the long run.  
  - Optimal fiscal consolidation approach accounts for authorities’ preferences and costs of spreading consolidation over a long horizon.  
- Policy guidance and targets:
  - A medium term non-mineral fiscal deficit target in the neighborhood of 5¼ percent of GDP appears appropriate given the size of the sustainability gap.  
  - The scale of required adjustment underscores the need for developing a sound fiscal framework to support consolidation efforts.  
  - Given uncertainties in estimating mineral wealth, fiscal targets should be periodically updated to reflect changes in the outlook for mineral wealth.  
  - A conservative approach should be consistently used in such assessments to ensure continued soundness of the fiscal position.

*Source: IMF staff analysis and calculations as presented in the supplied document.*

### 1.5 percent per year until they reach 150 dollars per barrel (projected by the U.S. Energy

### _wp14121 - 1.5 percent per year until they reach 150 dollars per barrel (projected by the U.S. Energy

### Mineral-wealth valuation and key assumptions
- Proven reserves of oil are assumed to last for 15 years at the projected levels of production in 2018 and no significant discovery is assumed to take place in the period. The production decline is assumed to be gradual and starts after year ten and continues until year twenty.  
- Bauxite-related fiscal revenues have declined to low levels. Bauxite prices are assumed to follow WEO projections until 2018, with volumes similar to current levels; beyond that, revenues from bauxite as a share of GDP stay at 2018 levels up to 2032 and then taper off to zero by 2050.  
- Government tax rates are assumed constant at the 2012 level.  
- Under those parameters the value of the mineral resources for the central government is calculated as the discounted value of future revenue flows using a 4 percent real discount rate, which yields US$ 5.5 billion, just above the current GDP.  
- Average Gold Price reported: US$ 1485.0 US$/ounce. Average Oil Price reported: US$ 98.8 US$/barrel.

### Permanent Income Hypothesis (applications and scenarios)
- Strict permanent income rule: flows available for consumption should match the returns to the discounted value of the project’s future flows so capital is preserved forever.  
- Alternative, less stringent rules allow graduating spending over time to permit a gradual transition as resources are depleted and to target sustainable non-mineral fiscal balances.  
- Scenarios described:
  - Passive scenario: no near-term action; mineral revenues dwindle to zero in about 20 years, forcing corrective action later (non-mineral deficit forced to be near zero or public debt rises sharply).  
  - Early tightening to a non-mineral deficit target of about 5 percent of GDP: would enable consumption of mineral revenues forever (permanent income hypothesis scenario).  
  - Tightening to a target of 6 percent of GDP: would exhaust mineral wealth at around 2060, but annual nominal consumption of mineral revenue at that point would be a small share of GDP, requiring only minor offsetting action.  
- Given the large gap between the fiscal outcome in 2012 (non-mineral deficit of 15¼ percent of GDP) and sustainable paths, early and substantial consolidation is considered warranted.

### Inter-Temporal Budget Constraint and sustainability-gap measurement
- Government inter-temporal budget constraint summarized (equations (1)–(5) in source) — present-value condition that future primary surpluses must be sufficient to pay off initial debt.  
- Output-gap interaction: the passive path for the primary balance is influenced by the evolution of the output gap; structural primary balance modeled as t
p* = t
p - ∂ t
O (equation (6)).  
- Operational treatment: assume a steady state is achieved at some future period τ, beyond which the primary balance stays constant; this allows converting infinite sums into finite geometric progression terms.  
- Main quantitative findings:
  - Estimated sustainability gap for Suriname is about 14 percent of GDP. This large gap primarily reflects the outlook for mineral revenue, expected under the conservative baseline to decline from around 11 percent of GDP in 2012 to zero over the long run, and the large fiscal deficit (4 percent of GDP in 2012).  
  - Using a less conservative assumption where the nominal mineral revenue projected for 2018 is maintained thereafter only slightly reduces the sustainability gap to 13¾ percent of GDP.  
- No-corrective-measures scenario consequences:
  - Public debt would mathematically rise to over 700 percent of GDP by 2060.  
  - The primary balance is projected to decline by 11½ percentage points to a deficit of 14½ percent of GDP.  
  - The overall fiscal deficit deteriorates by over 74 percentage points to around 78 percent of GDP.  
  - Result: interest payments rise exponentially and would force abrupt fiscal tightening well before such debt levels materialize.  
- Opposite extreme (immediate full adjustment) outcome:
  - Gross debt is driven to zero by 2015, with a substantial buildup of government assets thereafter to help offset depletion of natural resource revenues.

### Optimal fiscal consolidation paths (framework)
- Authorities’ objective: minimize a quadratic loss function over an infinite horizon that penalizes deviations of the output gap and the sustainability gap (equation (9)).  
- Output-gap dynamics: O_t+1 = λ(1)O_t - ξ f_t (equation (10) formulation in source).  
- Sustainability-gap dynamics with discretionary fiscal measures: S_t evolves according to S_t = ((1+g)/(1+r)) S_{t-1} - ((1+g)/(1+r)) f_t (equation (12) summarized).  
- Key theoretical result: when the discount rate exceeds the GDP growth rate, delaying corrective action is costly — the sustainability gap grows over time absent consolidation.  
- Policy implication: optimal fiscal consolidation is front-loaded when the sustainability gap is large relative to the output gap; the optimal fiscal consolidation pace is linear in the output and sustainability gaps (equation (13) specification), with coefficients determined by model parameters (see source equations (14) for derivation).

### Calibration for Suriname and model predictions
- Calibration values used:
  - Initial sustainability gap as of 2012: 13.9 percent of GDP.  
  - Estimated output gap in 2012: 0.5 percent of GDP.  
  - λ calibrated to 0.5 (implying an output gap of 2 percent of GDP is eliminated after six years absent fiscal measures).  
  - Fiscal multiplier: 0.5.  
  - Nominal discount rate: 10 percent.  
  - Long run average nominal GDP growth rate: 9¼ percent.  
  - Authorities’ revealed-preference weight parameter α = 0.89 (based on 2011 structural fiscal consolidation of 4 percent of GDP).  
- Model predictions for optimal path:
  - Fiscal tightening of about 5 percent of GDP in 2013 (front-loaded adjustment).  
  - Headline overall balance projected to improve by about 3 percent of GDP in 2013 (initial impact partly offset by worsening output gap on revenues).  
  - Over the medium term (by 2018) optimal structural fiscal adjustment totals 10½ percent of GDP, which would offset a projected 3½ percent of GDP decline in mineral revenues over the period.  
  - By 2018 headline fiscal balance projected to be a surplus of 2½ percent of GDP.  
  - Non-mineral deficit declines to 5¼ percent of GDP in 2018.  
  - Over the long run the sustainability gap declines steadily and is eliminated by (text truncates at end of source).

*Source: IMF staff analysis and calculations as presented in the supplied document.*

### 2043. Because of the delay in achieving sustainability, the total amount of measures needed

### _wp14121 - 2043. Because of the delay in achieving sustainability, the total amount of measures needed

### C. Sensitivity of Model Predictions
- Context:
  - Figure 2 presents sensitivity tests showing how the optimal tightening predicted by the model for 2013 varies when initial conditions or parameter values are varied.
  - The optimal tightening for 2013 under the assumed parameter values and initial conditions is 5 percent of GDP (the figure footnote reports a baseline optimal fiscal tightening for 2013 as 5.1 percent of GDP).
- Fiscal multiplier:
  - Optimal tightening varies strongly with the fiscal multiplier, particularly for values below one.
  - Over the range considered (0-2), optimal tightening is highest with a zero multiplier and declines in a monotone but nonlinear fashion as the multiplier increases.
  - Examples:
    - If the multiplier were 0.7 rather than 0.5, optimal tightening in 2013 would be 3¼ percent of GDP rather than 5 percent of GDP.
    - With a multiplier of 0.3 the optimal tightening for 2013 would be 8½ percent of GDP.
- Country preferences (preference weight on output gap):
  - The preference parameter is 0.89, tilted in favor of closing the output gap rather than the sustainability gap.
  - In the neighborhood of 0.89 the curve is quite steep; beyond 0.9 sensitivity intensifies.
  - Example: with alpha at 0.93, the optimal tightening for 2013 would be 3½ percent of GDP.
- Resilience of the economy (autoregressive parameter on the output gap, lambda):
  - Varying lambda between 0 and 1 (0 = instant adjustment) shows the optimal tightening for 2013 is not very sensitive to this parameter.
  - Variation across the range is about ¾ percent of GDP.
- Initial output gap:
  - Optimal tightening is moderately sensitive to revisions in the initial output gap.
  - Example: if the initial output gap were -0.5 percent instead of the assumed 0.5 percent, the optimal tightening for 2013 would decline to 4½ percent of GDP.
- Initial sustainability gap:
  - The sustainability gap estimate has significant uncertainty; sensitivity is moderate with a near-linear curve flatter than the 45 degree line.
  - Example: if the initial sustainability gap were 10 percent of GDP rather than the estimated 14 percent, the optimal tightening for 2013 would be 3¾ percent of GDP rather than 5 percent of GDP.
- Interest rate and GDP growth rate:
  - Long-run parameters such as the nominal discount rate and average nominal GDP growth rate have only a modest impact on the optimal tightening for 2013.
- Baseline parameter values and initial conditions reported in Figure 2 footnote:
  - Fiscal multiplier = 0.5
  - Preference weight = 0.89
  - Autoregressive parameter for output gap = 0.5
  - Discount rate = 10 percent
  - GDP growth rate = 9.2 percent
  - Initial output gap = 0.5 percent
  - Initial sustainability gap = 14.0 percent of GDP
  - Baseline optimal fiscal tightening for 2013 = 5.1 percent of GDP

### Figures and Illustrations (summary of key depicted trajectories)
- Fiscal sustainability trajectories (Figure 1 series) illustrate alternative paths for:
  - Structural Primary Balance Excluding Mineral Revenue
  - Overall Balance Excluding Mineral Revenue
  - Gross Central Government Debt
  - Primary Balance
  - Overall Balance
  - Net Central Government Debt
- Scenarios depicted include:
  - Immediate full adjustment
  - "Optimal" adjustment path
  - No measures
  - Baseline 1/ (baseline incorporates staff medium term baseline projections up to 2018 and assumes no further fiscal adjustment thereafter)
- Notes on debt presentation:
  - Net debt is calculated as gross debt minus the liquid assets of central government in the initial period (2013), estimated as the sum of US$20 million set aside for initial deposit into the Sovereign Wealth Fund and US$375 million of funds borrowed for use in purchasing equity stakes in two gold mining ventures.
  - Negative debt reflects the accumulation of assets.

### V. Final Remarks — Findings and Policy Implications
- Main findings:
  - Both methodologies indicate a large fiscal adjustment need over the medium and long run.
  - The estimated sustainability gap is 14 percent (close to the size of the non-mineral deficit for 2012 that needs to be fully offset as mineral revenues dwindle).
- Comparison of approaches:
  - Permanent income hypothesis approach envisages bulk of adjustment in a single step by choosing a fixed nominal amount of mineral revenues to consume over the long run.
  - Optimal fiscal consolidation approach accounts for authorities’ preferences and costs of spreading consolidation over a long horizon.
- Policy guidance and targets:
  - A medium term non-mineral fiscal deficit target in the neighborhood of 5¼ percent of GDP appears appropriate given the size of the sustainability gap.
  - The scale of required adjustment underscores the need for developing a sound fiscal framework to support consolidation efforts.
  - Given uncertainties in estimating mineral wealth, fiscal targets should be periodically updated to reflect changes in the outlook for mineral wealth.
  - A conservative approach should be consistently used in such assessments to ensure continued soundness of the fiscal position.

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

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14121.pdf_