The 'Fiscal Presource Curse': Giant Discoveries and Debt Sustainability
IMF Working Papers, January 21, 2022
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- The 'Fiscal Presource Curse': Giant Discoveries and Debt Sustainability
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Bibliographic details
- Authors: Matteo Ruzzante, Nelson Sobrinho
- Published: January 21, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616358990.001
Overview and methodology
- Research question: Investigates the dynamic impact of natural resource discoveries on government debt sustainability.
- Empirical framework: Uses a ‘natural experiment’ framework in which the timing of discoveries is treated as an exogenous source of within-country variation.
- Data combined:
- Government debt, fiscal stress and debt distress episodes on a large panel of countries over 1970-2012.
- A global repository of giant oil, gas, and mineral discoveries.
Key findings
- Evidence of a “fiscal presource curse”: natural resources can jeopardize fiscal sustainability even before “the first drop of oil is pumped”.
- Giant discoveries, mostly of oil and gas, lead to permanently higher government debt.
- Giant discoveries eventually lead to debt distress episodes.
- The adverse effects are especially pronounced in countries with weaker political institutions and governance.
Policy implications and recommendations
- The fiscal presource curse can be mitigated and even prevented by:
- Pursuing prudent fiscal policies and borrowing strategies.
- Strengthening fiscal governance.
- Implementing transparent and robust fiscal frameworks for resource management.
Publication and metadata
- Authors: Matteo Ruzzante, Nelson Sobrinho
- Date: January 21, 2022
- Series: Working Paper No. 2022/010
- Issue: 010
- Volume: 2022
- Pages: 77
- DOI: https://doi.org/10.5089/9781616358990.001
- Subjects: Commodities, Debt sustainability, Environment, External debt, Natural resources, Non-renewable resources, Oil, Public debt
- Keywords: A.II governance indicator, debt distress episode, debt measure, Debt sustainability, Fiscal policy, giant discovery, Global, government financial assets, Mines, Natural resources, Non-renewable resources, Oil, Political institutions, Resource curse
IMF Working Paper — "The 'Fiscal Presource Curse': Giant Discoveries and Debt Sustainability", Matteo Ruzzante and Nelson Sobrinho, January 21, 2022.
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