Public Investment in a Developing Country Facing Resource Depletion
IMF Working Papers, November 10, 2015
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- Public Investment in a Developing Country Facing Resource Depletion
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Bibliographic details
- Authors: Adrian Alter, Matteo Ghilardi, Dalia S Hakura
- Published: November 10, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513530253.001
Summary and core findings
- The paper analyzes tradeoffs between savings, debt and public investment in the Republic of Congo, a developing country with looming oil exhaustibility concerns.
- Results highlight risks to fiscal and capital sustainability of oil exporting countries from:
- large scaling-up in public investment, and
- oil price volatility,
in view of a projected decline in the oil revenue to GDP ratio.
- Structural reforms that improve the efficiency of public investment can:
- allow for a relatively faster buildup of sustainable public capital, and
- sustain higher non-oil growth without adversely affecting the debt ratio or savings.
- Even if a government pursues prudent fiscal policy that preserves resource wealth and debt sustainability in the face of exhaustible and volatile resource revenues, low public investment quality in the form of a misallocation of resources can hinder attainment of sustainable public capital and positive non-oil growth.
Policy implications and recommendations
- Caution against large, rapid scaling-up of public investment in oil-exporting developing countries facing resource exhaustibility, particularly under oil price volatility.
- Prioritize structural reforms to improve public investment efficiency to:
- accelerate sustainable public capital accumulation, and
- support higher non-oil growth without compromising debt sustainability or national savings.
- Address public investment quality and project selection to avoid misallocation that can negate benefits of prudent fiscal policy.
Subjects and keywords (as listed)
- Subject: Expenditure, Oil prices, Oil, gas and mining taxes, Prices, Public debt, Public investment spending, Taxes
- Keywords: benchmark investment scenario, Central Asia, Debt Sustainability, East Asia, gas and mining taxes, GDP growth, Global, government investment expenditure, investment adjustment cost, investment cost, investment efficiency, investment increase, investment scaling-up phase, investment scenario, Middle East, Oil, Oil prices, oil revenue, project misallocation, Project Selection, Public Capital, Public investment spending, resource exhaustibility, Sub-Saharan Africa, WP
Content in this bundle
- _wp15236 — Section 1–4