{
  "title": "Debt Sustainability, Public Investment, and Natural Resources in Developing Countries: the DIGNAR Model",
  "publication": "IMF Working Papers, March 31, 2014",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/debt-sustainability-public-investment-and-natural-resources-in-developing-countries-the-41455",
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  "summary": "This paper presents the DIGNAR (Debt, Investment, Growth, and Natural Resources) model, which can be used to analyze the debt sustainability and macroeconomic effects of public investment plans in resource-abundant developing countries. DIGNAR is a dynamic, stochastic model of a small open economy.",
  "sections": [
    {
      "heading": "Model overview",
      "content": "- DIGNAR (Debt, Investment, Growth, and Natural Resources) is a dynamic, stochastic model of a small open economy designed to analyze debt sustainability and macroeconomic effects of public investment plans in resource-abundant developing countries.\n- The model is useful to assess debt sustainability in countries that borrow against future resource revenues to scale up public investment."
    },
    {
      "heading": "Key structural features",
      "content": "- Households:\n  - Two types of households, including poor households with no access to financial markets.\n- Sectors:\n  - Traded sector.\n  - Nontraded sector.\n  - Natural resource sector.\n- Public capital and investment:\n  - Public capital enters production technologies.\n  - Public investment is subject to inefficiencies and absorptive capacity constraints.\n- Government instruments and institutions:\n  - Access to different types of debt: concessional, domestic, and external commercial.\n  - A resource fund that:\n    - Can be used to finance public investment plans.\n    - Can serve as a buffer to absorb fiscal balances for given projections of resource revenues and public investment plans.\n  - When the resource fund is drawn down to its minimal value:\n    - A combination of external and domestic borrowing can be used to cover the fiscal gap in the short to medium run.\n    - Fiscal adjustments through tax rates and government non-capital expenditures are triggered to maintain debt sustainability.\n      - Government non-capital expenditures may be constrained by ceilings and floors, respectively."
    },
    {
      "heading": "Analytical mechanisms and dynamics",
      "content": "- Stochastic dynamics capture uncertainty in resource revenues and macroeconomic variables.\n- Interaction between public investment scaling and borrowing against future resource revenues determines debt trajectories and macroeconomic outcomes.\n- Absorptive capacity constraints and investment inefficiencies modulate the effectiveness of scaled-up public investment."
    },
    {
      "heading": "Primary uses and applications",
      "content": "- Assess debt sustainability under public investment scaling financed by resource revenues.\n- Evaluate macroeconomic effects of different financing mixes (concessional, domestic, external commercial).\n- Test the role of a resource fund as a buffer accommodating volatile resource revenues and planned investment paths.\n- Explore fiscal adjustment triggers (tax rates and non-capital spending) necessary to maintain debt sustainability when buffers are exhausted."
    },
    {
      "heading": "Subject areas and keywords (as provided)",
      "content": "- Subjects: Commercial borrowing, Consumption taxes, Environment, Expenditure, External debt, Natural resources, Public debt, Public investment spending, Taxes\n- Keywords: Africa, Commercial borrowing, Consumption taxes, Debt Sustainability, Developing Countries, DIGNAR, investment adjustment cost parameter, investment approach, investment efficiency, investment path, investment scaling-up path, natural resource, Natural resources, Public Investment, Public investment spending, resource revenue, scaling-up investment target, Small Open DSGE Models, Sub-Saharan Africa, WP\n\nGiovanni Melina, Susan S. Yang, and Luis-Felipe Zanna — IMF Working Paper, March 31, 2014.\n\n---\n\n Content in this bundle\n\n- wp1450\n  - wp1450 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1450 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/debt-sustainability-public-investment-and-natural-resources-in-developing-countries-the-41455"
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    "Authors: Giovanni Melina, Susan S. Yang, Luis-Felipe Zanna",
    "Published: March 31, 2014",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475515459.001",
    "DIGNAR (Debt, Investment, Growth, and Natural Resources) is a dynamic, stochastic model of a small open economy designed to analyze debt sustainability and macroeconomic effects of public investment plans in resource-abundant developing countries.",
    "The model is useful to assess debt sustainability in countries that borrow against future resource revenues to scale up public investment.",
    "Households:",
    "Sectors:",
    "Public capital and investment:",
    "Government instruments and institutions:",
    "Stochastic dynamics capture uncertainty in resource revenues and macroeconomic variables.",
    "Interaction between public investment scaling and borrowing against future resource revenues determines debt trajectories and macroeconomic outcomes.",
    "Absorptive capacity constraints and investment inefficiencies modulate the effectiveness of scaled-up public investment.",
    "Assess debt sustainability under public investment scaling financed by resource revenues.",
    "Evaluate macroeconomic effects of different financing mixes (concessional, domestic, external commercial).",
    "Test the role of a resource fund as a buffer accommodating volatile resource revenues and planned investment paths.",
    "Explore fiscal adjustment triggers (tax rates and non-capital spending) necessary to maintain debt sustainability when buffers are exhausted.",
    "Subjects: Commercial borrowing, Consumption taxes, Environment, Expenditure, External debt, Natural resources, Public debt, Public investment spending, Taxes",
    "Keywords: Africa, Commercial borrowing, Consumption taxes, Debt Sustainability, Developing Countries, DIGNAR, investment adjustment cost parameter, investment approach, investment efficiency, investment path, investment scaling-up path, natural resource, Natural resources, Public Investment, Public investment spending, resource revenue, scaling-up investment target, Small Open DSGE Models, Sub-Saharan Africa, WP",
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