Public Investment in a Developing Country Facing Resource Depletion

Adrian Alter, Matteo Ghilardi and Dalia Hakura

No 2015/236, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the tradeoffs between savings, debt and public investment in the Republic of Congo, a developing country with looming oil exhaustibility concerns. Our results highlight the 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. However, 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. Moreover, we show that 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.

Keywords: WP; investment efficiency; Public Capital; Debt Sustainability; Project Selection; oil revenue; investment scaling-up phase; investment scenario; investment adjustment cost; GDP growth; project misallocation; government investment expenditure; benchmark investment scenario; investment increase; resource exhaustibility; investment cost; Public investment spending; Oil; gas and mining taxes; Oil prices; Sub-Saharan Africa; Middle East; East Asia; Central Asia; Global (search for similar items in EconPapers)
Pages: 35
Date: 2015-11-10
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