{
  "title": "How Public Investment Could Help Strengthen Iran’s Growth Potential: Issues and Options",
  "publication": "IMF Working Papers, June 8, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/06/08/how-public-investment-could-help-strengthen-irans-growth-potential-issues-and-options-45679",
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  "summary": "Public investment is key to growth in developing oil-exporting countries and oil revenue is an important source of finance for public investment.",
  "sections": [
    {
      "heading": "Summary — Key Findings",
      "content": "- Public investment is key to growth in developing oil-exporting countries and oil revenue is an important source of finance for public investment.\n- Assessing the growth impact of public investment in Iran under various investment scaling-up (gradual, aggressive, and conservative) and oil price (baseline and adverse) scenarios shows:\n  - Because of absorptive capacity constraint and investment inefficiency the growth outcome of an aggressive investment scaling-up is not significantly different from a conservative or a gradual scenario.\n  - The costs of an aggressive scaling-up, in terms of fiscal adjustment, are significantly higher, especially during low oil price periods.\n- An improvement in investment efficiency has a significant positive impact on growth outcome and leads to higher private consumption and investment.\n- Using an oil fund can help contain the size of fiscal adjustments, although it would result in a larger appreciation of real exchange rate and deterioration in the current account balance."
    },
    {
      "heading": "Scenarios, Assumptions, and Comparative Outcomes",
      "content": "- Investment scaling-up scenarios considered: gradual, aggressive, and conservative.\n- Oil price scenarios considered: baseline and adverse.\n- Constraints emphasized:\n  - Absorptive capacity constraint limits growth gains from aggressive scaling-up.\n  - Investment inefficiency reduces the effectiveness of increased public investment.\n- Comparative outcome summary:\n  - Aggressive scaling-up: not significantly better for growth than gradual or conservative when absorptive capacity and inefficiency are accounted for; entails substantially higher fiscal adjustment costs, notably under low oil price conditions.\n  - Improved investment efficiency: materially raises growth outcomes and private-sector demand (private consumption and investment).\n  - Oil fund usage: lowers required fiscal adjustments but has trade-offs — larger real exchange rate appreciation and worse current account balance."
    },
    {
      "heading": "Policy Implications and Options",
      "content": "- Prioritize measures that improve investment efficiency to amplify growth impact of public investment.\n- Consider sequencing and sizing of investment scaling-up mindful of absorptive capacity constraints to avoid excessive fiscal adjustment costs.\n- Weigh the trade-offs of establishing/using an oil fund:\n  - Benefit: helps contain size of fiscal adjustments.\n  - Cost: leads to larger real exchange rate appreciation and deterioration in the current account balance.\n- Fiscal planning should explicitly account for oil price risk (baseline vs adverse scenarios) when designing public investment strategies.\n\n---\n\n Content in this bundle\n\n- wp18129\n  - wp18129 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp18129 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/06/08/how-public-investment-could-help-strengthen-irans-growth-potential-issues-and-options-45679"
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    "Authors: Amir Sadeghi",
    "Published: June 8, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484345139.001",
    "Public investment is key to growth in developing oil-exporting countries and oil revenue is an important source of finance for public investment.",
    "Assessing the growth impact of public investment in Iran under various investment scaling-up (gradual, aggressive, and conservative) and oil price (baseline and adverse) scenarios shows:",
    "An improvement in investment efficiency has a significant positive impact on growth outcome and leads to higher private consumption and investment.",
    "Using an oil fund can help contain the size of fiscal adjustments, although it would result in a larger appreciation of real exchange rate and deterioration in the current account balance.",
    "Investment scaling-up scenarios considered: gradual, aggressive, and conservative.",
    "Oil price scenarios considered: baseline and adverse.",
    "Constraints emphasized:",
    "Comparative outcome summary:",
    "Prioritize measures that improve investment efficiency to amplify growth impact of public investment.",
    "Consider sequencing and sizing of investment scaling-up mindful of absorptive capacity constraints to avoid excessive fiscal adjustment costs.",
    "Weigh the trade-offs of establishing/using an oil fund:",
    "Fiscal planning should explicitly account for oil price risk (baseline vs adverse scenarios) when designing public investment strategies.",
    "**wp18129**"
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