## _wp1590

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### Model and key assumptions
- Section III described the model and the key assumptions that we used for the assessment.
- A dynamic stochastic general equilibrium (DSGE) model with natural resource wealth for a small open economy is used to analyze debt sustainability and macroeconomic impact of alternative public investment plans.
- Model features:
  - Three sectors: nontraded (N), traded (T), and natural resource (O); resource output assumed exported.
  - Two household types: optimizing (OPT) with access to capital markets and hand-to-mouth (HTM) without access.
  - Public capital enters production; public investment is subject to inefficiencies and absorptive capacity constraints.
  - Government has access to multiple debt instruments (concessional, external commercial, domestic) and a resource fund acting as fiscal buffer.
  - Resource fund evolution: earns interest at constant gross real rate; drawn down when fiscal outflows exceed inflows; cannot accumulate liabilities.
  - Fiscal adjustments first trigger borrowing (external commercial when fund exhausted) and then tax adjustments (consumption and labor income taxes in analysis) to maintain debt sustainability.

### Calibration and key parameter values (application to Mongolia)
- Calibration horizon and data:
  - Initial steady states calibrated to year 2014 macro conditions; model frequency annual; simulation horizon runs till 2025.
- National accounts and fiscal shares:
  - Export to GDP calibrated at 40%.
  - Import to GDP calibrated at 57%.
  - Share of government spending is 19.6% of GDP: 13.7% government consumption and 5.9% government investment expenditure.
- Stocks and debt (reflecting 2013 values):
  - Consolidated government debt was around 60% of GDP composed of 14.7% domestic debt, 20% concessional debt, and 26% government external borrowing.
  - Private foreign borrowing stands at 87% of GDP.
  - Sovereign welfare fund (SWF) well below the government desired level of 5%.
- Production and technology parameters:
  - Labor income shares: αN = 0.45 and αT = 0.60.
  - Private capital depreciation rates: δN = δT = 0.10.
  - Learning-by-doing externalities in traded good: ρYT = ρzT = 0.10.
  - Investment adjustment costs: κN = κT = 25.
- Preferences and market access:
  - Coefficient of risk aversion σ = 2.94 (implying inter-temporal elasticity of substitution of 0.34).
  - Frisch labor elasticity parameter ψ = 10 (low Frisch elasticity of 0.10).
  - Labor mobility parameter ρ = 1.
  - Elasticity of substitution between traded and nontraded goods χ = 0.44.
  - Capital account openness parameter η = 1.
- Tax calibration and fiscal stance:
  - Steady state consumption and labor tax rates are 10% each.
  - Tax rate on return on capital calibrated at 24% to match steady-state government tax revenue share (~28% of GDP).
  - Assumption: limited space for tax adjustment—government will not adjust tax rates to finance public spending; additional public debt will be financed by non-concessional external debt.

### Country background, growth, and vulnerabilities
- Resource endowment and projects:
  - Mongolia’s mineral resource wealth is estimated at US$1-3 trillion, with coal, copper, and gold as principal reserves.
  - Mongolia hosts 10% of the world's known coal reserves; the Tavan Tolgoi coal mine (TT) is one of the world’s largest untapped coking and thermal coal deposits.
  - Oyu Tolgoi (OT) development: a 2009 JV with Turquoise Hill Resources/Rio Tinto.
    - OT has attracted more than $6 billion (50 percent of GDP) in FDI for OT-1, with another $5 billion in the pipeline for OT-2.
    - OT-1 completed construction and started commercial production in 2013.
    - OT-2 could start production only from 2020 onwards should the dispute be solved soon.
- Growth and structure:
  - Real GDP growth averaged 9 percent over the past decade.
  - Per capita income has more than quadrupled, to more than $4,000.
  - Mining accounts directly for 20 percent of the economy; mineral exports account for over 40 percent of GDP.
  - Minerals account for 90 percent of all exports, and 90 percent of these exports are bound for China.
- Recent macro vulnerabilities:
  - Repeated boom-bust cycles: latest balance-of-payments crisis in 2009; renewed shocks to FDI and coal exports since early 2013 led to sharp reserve losses and exchange rate depreciation.
  - Real exchange rate appreciated substantially from 2009 to mid-2013 amid large FDI inflows; noncommodity exports performed anemically.
  - 2013 monetary stimulus led to credit growth spike to 54 percent y/y; nominal exchange rate depreciation by more than 40 percent in 2013-14; inflation rose to double digits; reserves dropped by two thirds despite aggressive external borrowing.

### Fiscal framework and sovereign wealth fund (SWF) issues
- Fiscal Stability Law (FSL) prescribes that the structural fiscal deficit should be kept below 2 percent of GDP.
- Off-budget spending via Development Bank of Mongolia (DBM) pushed consolidated deficit to around 10 percent of GDP in 2012 and 2013, despite on-budget deficit kept within 2 percent of GDP.
- Public debt rose from below 40 percent of GDP in 2011 to more than 60 percent of GDP in end-2013.
- SWF legal framework under development:
  - Authorities expect to start depositing a large share of mineral revenue into the SWF from 2018 and refrain from drawing down the fund in the next few decades; later drawing would support social spending and capacity building.
  - Building up SWF by borrowing rather than saving would be inappropriate; compliance with FSL or running a surplus is needed to build savings.
- Recommended consolidated fiscal balance target: aim for a deficit of 2 percent of GDP near term (FSL) and over time target a surplus to accumulate SWF savings.
- Recommended public investment stance: adopt a moderate public investment path to build capacity and avoid wasting resources when investment capacity is overstretched.

### Public investment, absorptive capacity, and fiscal closure in the model
- Public investment paths (as share of GDP) are taken exogenously and computed outside the model.
- Public investment efficiency falls when additional investment exceeds a threshold; efficiency on additional investment above threshold drops from steady-state efficiency value to a lower value to capture absorptive capacity constraints.
- When the resource fund is exhausted (reaches zero), external commercial borrowing is assumed accessible; fiscal adjustments via consumption and labor taxes are then used to stabilize debt.
- Debt-stabilizing target tax equations and policy rules are specified in the model to determine tax-rate adjustments subject to maximum levels and speed-of-adjustment parameters (ζ’s).

### Scenarios analyzed
- Two public investment approaches:
  - Fiscal consolidation: government cuts its public investment.
  - Aggressive Investment: government maintains current public investment level for infrastructure development and growth.
- Two resource-sector scenarios under each public investment path:
  - Baseline scenario:
    - Copper concentrate production estimated to increase from about ½ million tons in 2013 to more than 1 million tons by 2020.
    - Resource revenues from copper as percent of total revenue increase from 20 percent to about 40 percent in 10 years.
  - Adverse scenario:
    - Negative copper production shock by delaying Phase II of Oyu Tolgoi (OT-2).
    - Copper price shock of the same size as observed during 2009.
    - Resource revenues from copper will stay flat in the range of 20-25 percent of total government revenue.
- Financing assumption common to scenarios:
  - Government resorts to only external commercial borrowing to balance its financial deficit.
  - Fiscal adjustment via increasing consumption tax or labor tax is not feasible due to political constraints.

### Key simulation results — Baseline scenario
- Under fiscal consolidation (public investment cut from 15 percent of GDP in 2014 to around 10 percent of GDP in 2015 and onward):
  - Public capital will rise by 60 percent from the level of the steady states.
  - Moderate savings in the SWF starting from 2019.
  - SWF will increase to about 12 percent of GDP in 2025.
  - Investment path with fiscal consolidation will not require additional borrowing.
  - Total public debt will reduce and be stabilized at about 45 percent of GDP eventually.
  - Real exchange rate overvaluation of about 10 percent in 2014; the gap will diminish by 5 percentage points with fiscal actions.
- Under aggressive/high public investment (gradual reduction to 10 percent of GDP):
  - Potential for higher non-oil GDP and private investment due to crowding-in from higher public capital accumulation.
  - Total public debt will increase to 80 percent of GDP in 2018 and stabilize at 65 percent in the long term (about 20 percentage points higher compared to fiscal consolidation results).
  - Less saving in the stabilization fund.
  - Appreciation of real exchange rate will persist longer; Dutch disease will last longer.
  - Current account deficit will be more than 5 percent of GDP higher compared to fiscal consolidation scenario.

### Key simulation results — Adverse scenario (negative resource shock)
- With fiscal consolidation:
  - Ratio of public debt to GDP increases by 10 percentage points to about 70 percent, reflecting higher levels of external non-concessional debt (rising for about 20 percent of GDP).
  - SWF will not have any savings.
- With aggressive investment:
  - Public debt path will be explosive; public debt sustainability at high risk of distress and may require large fiscal adjustment.
  - Real exchange rate overvalued by more than 10 percent and should be allowed to depreciate.
  - Current account deficit would widen—estimated additional 5 percent of GDP compared to the baseline projection with fiscal consolidation path.
  - High levels of external borrowing increase country risk premium and borrowing costs.
- Quantitative message for Mongolia:
  - Fiscal consolidation leads to reduction in total public debt to 40% target over time.
  - However, total public debt could increase by 10 percent of GDP from the current level in case of adverse shock even when fiscal consolidation is implemented.
  - Authorities should manage to build up sovereign welfare fund to smooth out investment in case of negative shocks.

### Robustness checks on investment efficiency
- Literature benchmark: about one-half of public investment expenditure translates into effective public investment in low income countries.
- Assumption for Mongolia: steady-state efficiency of public investment assumed to be 0.65 (65 percent).
- If investment efficiency is lower by 2 percentage points (about 63 percent), public capital accumulation and non-resource output production will be dampened mildly.
- Robustness figures demonstrate that aggressive scaling up yields lower measured efficiency compared to fiscal consolidation; fiscal consolidation improves measured efficiency.

### Policy implications and recommendations
- Full compliance with the FSL is critical: aim for consolidated fiscal deficit of 2 percent of GDP in the near term and a path to surplus over time to build SWF savings.
- Avoid aggressive, front-loaded public investment that exceeds absorptive capacity; favor a moderate public investment path to allow capacity building and higher investment efficiency.
- SWF usage: deposit mineral revenues starting 2018 and refrain from early drawdowns; building SWF by borrowing is not appropriate.
- Restore external viability through a policy package of fiscal consolidation, tighter monetary stance, and real exchange rate depreciation.
- Improve institutions, governance, and project selection to raise public investment efficiency, increase returns, and facilitate sustainable capital accumulation.
- Safeguard macroeconomic stability via deficit reduction while maintaining well-targeted transfers and subsidies for inclusiveness.

*Source: IMF staff analysis as presented in the specified content unit.*

### Section III described the model and the key assumptions that we used for the assessment.

### _wp1590 - Section III described the model and the key assumptions that we used for the assessment.

### Model and key assumptions
- Section III described the model and the key assumptions that we used for the assessment.

*Source: _wp1590 - Section III described the model and the key assumptions that we used for the assessment.*

### Section IV presents the results derived from the analysis for alternative scenarios, and

### _wp1590 - Section IV presents the results derived from the analysis for alternative scenarios, and

### Country background and natural resource sector
- Mongolia’s mineral resource wealth is estimated at US$1-3 trillion, with coal, copper, and gold as principal reserves.
- Mongolia hosts 10% of the world's known coal reserves; the Tavan Tolgoi coal mine (TT) is one of the world’s largest untapped coking and thermal coal deposits.
- Oyu Tolgoi (OT) development: a 2009 JV with Turquoise Hill Resources/Rio Tinto.
  - OT has attracted more than $6 billion (50 percent of GDP) in FDI for OT-1, with another $5 billion in the pipeline for OT-2.
  - OT-1 completed construction and started commercial production in 2013.
  - OT-2 could start production only from 2020 onwards should the dispute be solved soon.

### Growth, structure, and vulnerabilities
- Real GDP growth averaged 9 percent over the past decade.
- Per capita income has more than quadrupled, to more than $4,000.
- Mining accounts directly for 20 percent of the economy; mineral exports account for over 40 percent of GDP.
- Minerals account for 90 percent of all exports, and 90 percent of these exports are bound for China.
- Repeated boom-bust cycles: latest balance-of-payments crisis in 2009; renewed shocks to FDI and coal exports since early 2013 led to sharp reserve losses and exchange rate depreciation.

### Debt sustainability and fiscal framework
- Fiscal Stability Law (FSL) prescribes that the structural fiscal deficit should be kept below 2 percent of GDP.
- Off-budget spending via Development Bank of Mongolia (DBM) pushed consolidated deficit to around 10 percent of GDP in 2012 and 2013, despite on-budget deficit kept within 2 percent of GDP.
- Public debt rose from below 40 percent of GDP in 2011 to more than 60 percent of GDP in end-2013.
- Sovereign wealth fund (SWF) legal framework under development:
  - Authorities expect to start depositing a large share of mineral revenue into the SWF from 2018 and refrain from drawing down the fund in the next few decades; later drawing would support social spending and capacity building.
  - Building up SWF by borrowing rather than saving would be inappropriate; compliance with FSL or running a surplus is needed to build savings.
- Recommended consolidated fiscal balance target: aim for a deficit of 2 percent of GDP near term (FSL) and over time target a surplus to accumulate SWF savings.
- Recommended public investment stance: adopt a moderate public investment path (rather than aggressive) to build capacity and avoid wasting resources when investment capacity is overstretched.

### External sustainability and recent macroeconomic developments
- Real exchange rate appreciated substantially from 2009 to mid-2013 amid large FDI inflows; noncommodity exports performed anemically.
- Large current account deficits during front-loaded investments required substantial external borrowing (public and private).
- In response to adverse shocks to FDI and commodity prices, 2013 monetary stimulus led to:
  - Credit growth spike to 54 percent y/y.
  - Nominal exchange rate depreciation by more than 40 percent in 2013-14.
  - Inflation rose to double digits.
  - Reserves dropped by two thirds despite aggressive external borrowing.
- External sector assessment indicates a significant current account gap induced by unsustainable macro policy mix; restoring external viability requires:
  - Compressing fiscal deficit.
  - Tightening monetary policy stance.
  - Depreciating the exchange rate in real terms.

### Model-based analysis: DSGE framework and purpose
- A dynamic stochastic general equilibrium (DSGE) model with natural resource wealth for a small open economy is used to analyze debt sustainability and macroeconomic impact of alternative public investment plans.
- Model features:
  - Three sectors: nontraded (N), traded (T), and natural resource (O); resource output assumed exported.
  - Two household types: optimizing (OPT) with access to capital markets and hand-to-mouth (HTM) without access.
  - Public capital enters production; public investment is subject to inefficiencies and absorptive capacity constraints.
  - Government has access to multiple debt instruments (concessional, external commercial, domestic) and a resource fund acting as fiscal buffer.
  - Resource fund evolution: earns interest at constant gross real rate; drawn down when fiscal outflows exceed inflows; cannot accumulate liabilities.
  - Fiscal adjustments first trigger borrowing (external commercial when fund exhausted) and then tax adjustments (consumption and labor income taxes in analysis) to maintain debt sustainability.

### Calibration and key parameter values (application to Mongolia)
- Calibration horizon and data:
  - Initial steady states calibrated to year 2014 macro conditions; model frequency annual; simulation horizon runs till 2025.
- National accounts and fiscal shares:
  - Export to GDP calibrated at 40%.
  - Import to GDP calibrated at 57%.
  - Share of government spending is 19.6% of GDP: 13.7% government consumption and 5.9% government investment expenditure.
- Stocks and debt (reflecting 2013 values):
  - Consolidated government debt was around 60% of GDP composed of 14.7% domestic debt, 20% concessional debt, and 26% government external borrowing.
  - Private foreign borrowing stands at 87% of GDP.
  - Sovereign welfare fund (SWF) well below the government desired level of 5%.
- Production and technology parameters:
  - Labor income shares: αN = 0.45 and αT = 0.60.
  - Private capital depreciation rates: δN = δT = 0.10.
  - Learning-by-doing externalities in traded good: ρYT = ρzT = 0.10.
  - Investment adjustment costs: κN = κT = 25.
- Preferences and market access:
  - Coefficient of risk aversion σ = 2.94 (implying inter-temporal elasticity of substitution of 0.34).
  - Frisch labor elasticity parameter ψ = 10 (low Frisch elasticity of 0.10).
  - Labor mobility parameter ρ = 1.
  - Elasticity of substitution between traded and nontraded goods χ = 0.44.
  - Capital account openness parameter η = 1.
- Tax calibration and fiscal stance:
  - Steady state consumption and labor tax rates are 10% each.
  - Tax rate on return on capital calibrated at 24% to match steady-state government tax revenue share (~28% of GDP).
  - Assumption: limited space for tax adjustment—government will not adjust tax rates to finance public spending; additional public debt will be financed by non-concessional external debt.

### Public investment, absorptive capacity, and fiscal closure in the model
- Public investment paths (as share of GDP) are taken exogenously and computed outside the model.
- Public investment efficiency falls when additional investment exceeds a threshold; efficiency on additional investment above threshold drops from steady-state efficiency value to a lower value to capture absorptive capacity constraints.
- When the resource fund is exhausted (reaches zero), external commercial borrowing is assumed accessible; fiscal adjustments via consumption and labor taxes are then used to stabilize debt.
- Debt-stabilizing target tax equations and policy rules are specified in the model to determine tax-rate adjustments subject to maximum levels and speed-of-adjustment parameters (ζ’s).

### Key policy implications highlighted
- Full compliance with the FSL is critical: aim for consolidated fiscal deficit of 2 percent of GDP in the near term and a path to surplus over time to build SWF savings.
- Avoid aggressive, front-loaded public investment that exceeds absorptive capacity; favor a moderate public investment path to allow capacity building and higher investment efficiency.
- SWF usage: deposit mineral revenues starting 2018 and refrain from early drawdowns; building SWF by borrowing is not appropriate.
- Restore external viability through a policy package of fiscal consolidation, tighter monetary stance, and real exchange rate depreciation.

*Source: IMF staff analysis as presented in the specified content unit.*

### 1. Fiscal consolidation: In this plan government starts fiscal consolidation to reduce

### _wp1590 - 1. Fiscal consolidation: In this plan government starts fiscal consolidation to reduce

### Scenarios and public investment paths
- Two public investment approaches analyzed:
  - Fiscal consolidation: government cuts its public investment.
  - Aggressive Investment: government maintains current public investment level for infrastructure development and growth.
- Two resource-sector scenarios analyzed under each public investment path:
  - Baseline scenario:
    - Mining revenue projections obtained using the FARI model.
    - Copper concentrate production estimated to increase from its current level of about ½ million tons in 2013 to more than 1 million tons by 2020.
    - Rapid growth expected around 2020 with Oyu Tolgio LLC. starting phase II.
  - Adverse scenario:
    - Introduces a negative copper production shock by delaying Phase II of Oyu Tolgio LLC.
    - Introduces a copper price shock of the same size as observed during 2009.
- Financing assumption common to scenarios:
  - Government resorts to only external commercial borrowing to balance its financial deficit.
  - Fiscal adjustment via increasing consumption tax or labor tax is not feasible due to political constraints.

### Efficiency and absorptive capacity
- Literature-based benchmark on public investment efficiency:
  - Only around half of public investment expenditure translates into effective public investment in low income countries (Berg et al. 2013 and van der Ploeg, 2012).
  - $1 spent on public investment may translate into $0.5 worth of public capital formulation in that literature.
- Assumption for Mongolia:
  - Steady-state efficiency of public investment assumed to be 0.65 (65 percent) for Mongolia, considering relatively higher public investment efficiency index (See Dabla-Norris, 2011).
- Absorptive capacity dynamics:
  - If public investment level remains high, inefficiency likely to increase due to absorptive capacity constraints; more investment expenditure will be wasted.
  - Investment efficiency decreases more in the short run in case of aggressive public investment than fiscal consolidation.
  - Improving institutions, governance, and project selection increases average real return and productivity of private factors, enhancing capital accumulation and growth without causing high debt distress.
- Robustness example on efficiency change:
  - A difference of average public investment efficiency of about 1 percentage points will point to one percent change of public capital accumulation over ten years (example, with caveat on difficulty of achieving such improvement).

### Simulation results — Baseline scenario (left columns in Figures 1–3)
- Baseline assumptions and paths:
  - Copper output (millions of tons) is expected to double in 2020.
  - Resource revenues from copper as percent of total revenue increase from 20 percent to about 40 percent in 10 years.
  - Under fiscal consolidation: public investment cut from 15 percent of GDP in 2014 to around 10 percent of GDP in 2015 and onward.
- Outcomes with fiscal consolidation (solid blue lines):
  - Public capital will rise by 60 percent from the level of the steady states.
  - Moderate savings in the SWF starting from 2019.
  - SWF will increase to about 12 percent of GDP in 2025.
  - Investment path with fiscal consolidation will not require additional borrowing.
  - Total public debt will reduce and be stabilized at about 45 percent of GDP eventually.
  - Real exchange rate overvaluation of about 10 percent in 2014; the gap will diminish by 5 percentage points with fiscal actions.
- Outcomes with aggressive/high public investment (red dashed lines, gradual reduction to 10 percent of GDP):
  - Potential for higher non-oil GDP and private investment due to crowding-in from higher public capital accumulation.
  - Financing costs are non-trivial; national debt burden becomes significant.
  - Less saving in the stabilization fund.
  - Total public debt will increase to 80 percent of GDP in 2018 and stabilize at 65 percent in the long term (about 20 percentage points higher compared to fiscal consolidation results).
  - Appreciation of real exchange rate will persist longer; Dutch disease (decline in traded output) will last longer.
  - Current account deficit will be more than 5 percent of GDP higher compared to fiscal consolidation scenario.

### Simulation results — Adverse scenario: Negative resource shock (right columns in Figures 1–3)
- Adverse scenario features:
  - Vast delay of OT-2 production and a copper price shock analogous to 2009.
  - Resource revenues from copper will stay flat in the range of 20-25 percent out of the total government revenue.
- Outcomes under limited resource revenues:
  - Public capital still accumulates sizably under both investment paths.
  - SWF will not have any savings in either adverse scenario.
  - With fiscal consolidation (solid blue lines):
    - Ratio of public debt to GDP increases by 10 percentage points to about 70 percent, reflecting higher levels of external non-concessional debt (rising for about 20 percent of GDP).
  - With aggressive investment (red dashed lines):
    - Public debt path will be explosive; public debt sustainability at high risk of distress and may require large fiscal adjustment.
    - Additional pressure on the real exchange rate; current exchange rate overvalued by more than 10 percent and should be allowed to depreciate.
    - Current account deficit would widen—estimated additional 5 percent of GDP in current account deficit as compared to the baseline projection with fiscal consolidation path.
    - High levels of external borrowing increase country risk premium and borrowing costs.
  - Even if OT-2 is implemented and substantially increases revenue, total public debt would remain significantly above the FSL limit; in case of major adverse shock public debt becomes unsustainable requiring undesirable tax increases or sharp spending cuts.
- Policy implication emphasized:
  - These flaws of aggressive investment call for fiscal consolidation.
  - Fiscal consolidation is contractionary short run but limits medium-term output losses given small fiscal multiplier.
  - Fiscal consolidation lowers interest rates and spreads, places debt on sustainable trajectory, enhances economic sustainability, facilitates real exchange rate depreciation to enhance external competitiveness and avoid Dutch disease, and eases absorptive capacity constraints to improve investment efficiency over time.
- Quantitative message for Mongolia:
  - Fiscal consolidation leads to reduction in total public debt to 40% target over time (Figure 2).
  - However, total public debt could increase by 10 percent of GDP from the current level in case of adverse shock (e.g., delayed OT-2 or negative international commodity price shock) even when fiscal consolidation is implemented.
  - Authorities should manage to build up sovereign welfare fund to smooth out investment in case of negative shocks.

### Robustness checks
- Public investment efficiency sensitivity:
  - Under baseline scenario, investment efficiency remains lower in case of aggressive scaling up compared to fiscal consolidation; fiscal consolidation improves measured efficiency.
  - If investment efficiency is lower by 2 percentage points (implying efficiency about 63 percent at the steady state), public capital accumulation and non-resource output production will be dampened mildly.
- Figure 4 robustness check demonstrates effects of different efficiency assumptions on public capital accumulation and output.

### Conclusions and policy recommendations
- Model-based conclusions:
  - Two public investment strategies (baseline/aggressive and fiscal consolidation) produce contrasting outcomes for traded/non-traded sector growth, public capital formulation, investment efficiency, consumption, real exchange rate, balance of payments, and public debt.
  - Variables are highly sensitive to commodity production and price shocks, affecting government spending and potential non-oil output growth.
  - Improving institutional efficiency (governance, project selection) has positive impact on public capital formulation and overall growth and can raise public capital without harming fiscal sustainability.
- Policy recommendations:
  - Safeguard macroeconomic stability and fiscal sustainability via fiscal consolidation and complementary structural reforms based on a transparent institutional framework.
  - Key measures could include deficit reduction—for example, reducing public expenditure while maintaining well-targeted transfers and subsidies for inclusiveness.
  - Adopt a moderate investment strategy based on improved efficiency to facilitate economic diversification and growth potential.
  - Establish a coherent fiscal framework that addresses medium-term fiscal sustainability and makes savings under the sovereign wealth fund in the long run.
  - For resource-rich and capital-scarce economies, a long-term optimal fiscal framework should account for both the growth- or revenue-enhancing impact of investment and the fiscal distortions gauging its debt sustainability.
- Warning from simulations:
  - Ambitious scaling up of public investment can generate higher non-mineral growth but poses high challenges on debt sustainability and external viability; associated macro-financial risks may outweigh benefits, calling for fiscal consolidation and more moderate public investment pace.
  - Even without an adverse shock, public debt under the baseline investment path would reach more than 80 percent of GDP over the medium term and stay above 60 percent of GDP in outer years, signaling high risk of debt distress and delaying SWF buildup.
  - Baseline entails immediate macroeconomic risk given elevated balance of payments pressure; these risks increase substantially under adverse mining shocks.

*Source: _wp1590 - 1. Fiscal consolidation: In this plan government starts fiscal consolidation to reduce*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1590.pdf_