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Mr. Nigel A Chalk

sustainable fiscal behavior in an economy where wealth is derived predominantly from a non-renewable resource endowment. It explores the issue in a simple dynamic framework that highlights the structural weaknesses in the underlying budgetary position, takes into account the rate of depletion of a country′s natural resource base, and examines the impact of changes in a country′s terms of trade. An alternative indicator of fiscal sustainability is derived, and the principal factors determining sustainability are identified. The model highlights the “coredeficit—defined as

Mr. Nigel A Chalk

” using a simple dynamic framework that explicitly incorporates a non-renewable resource. This approach leads to an alternative measure of the fiscal position, which we call the “core deficit.” This measure is affected less by changes in resource revenue and also highlights structural weaknesses in the underlying budgetary position. The paper describes the type of fiscal policies that can be carried out in the long run. In addition, it examines the implications for fiscal policies of developments in the country′s terms of trade. In some cases, a country endowed with a

Mr. Nigel A Chalk and Mr. Richard Hemming

fiscal adjustment in all six countries over the period 1982–92. An alternative approach is to explicitly model the government’s intertemporal budget constraint along with the path of resource exploitation. Chalk (1998) constructs a model with the government owning a known stock of nonrenewable resources (again it is oil), receiving flows from it, and making transfers to the private sector on the basis of these flows. He establishes that, for fiscal policy to be sustainable, the ‘core deficit’ (defined to exclude both revenues and spending that are related to the

Mr. Vito Tanzi and Mr. Mario I. Bléjer

deficit of a given period is corrected for the effect of economic fluctuations and temporary measures, the developing countries’ analogue of the structural deficit is obtained. This analytical concept can be called the “coredeficit. 8 Between two countries with identical (actual) fiscal deficits, but with different core deficits, one would expect somewhat different policies for adjustment and, of course, different conditionality in a program with the International Monetary Fund. The proper long-run fiscal policy of a developing country should be oriented toward the

Mr. Nigel A Chalk
This paper assesses sustainable fiscal behavior in an economy where wealth is derived predominantly from a non-renewable resource. It explores the issue in a simple dynamic framework that highlights the structural weaknesses in the underlying budgetary position, takes into account the rate of depletion of a country’s natural resource base, and examines the impact of changes in a country’s terms of trade. An alternative indicator of fiscal sustainability is derived, and the principal factors determining sustainability are identified. The results of the analysis are applied to Venezuela and Kuwait.
Mr. Nigel A Chalk

dynamic framework that explicitly incorporates a nonrenewable resource. This approach leads to an alternative measure of the fiscal position, which we call the “core deficit.” This measure is affected less by changes in resource revenue and also highlights structural weaknesses in the underlying budgetary position. The chapter describes the type of fiscal policies that can be carried out in the long run. In addition, it examines the implications for fiscal policies of developments in a country’s terms of trade. In some cases, a country endowed with a nonrenewable

International Monetary Fund

–97. Germany’s strongly procyclical fiscal policy stance during the past 20 years implies that estimates of the general government’s structural balance may provide a misleading (i.e., too optimistic) benchmark for assessing the country’s present underlying fiscal position. In particular, budgetary improvements due to procyclical discretionary savings measures during a cyclical downswing may be dissipated again as the cyclical upswing takes place. The estimate of the general government core deficit, i.e., the fiscal deficit adjusted for all transitory movements in the budget

Mr. Zubair Iqbal

budget is strongly influenced by natural resource income subject to exogenous shocks, the situation of the budget rather than the level of the deficit has important implications for sustainability. The chapter therefore notes that, rather than the traditional deficit-GDP ratio as an indicator of fiscal health, fiscal sustainability in resource-dependent economies should be measured by the “coredeficit, which is defined as the overall deficit less net transfers and resource-based and investment income. A higher core deficit leads a country further away from long

Abstract

This book brings together recent IMF research on how the Middle East and North African countries are grappling with various macroeconomic challenges. It rigorously analyzes policy alternatives for a range of relevant topics, including the implications of changing demographic trends for growth and unemployment, determinants of inflation, financial-sector reform and Islamic banking, fiscal sustainability in oil-dependent economies, exchange rate and trade arrangements, and impediments to foreign direct investment. The book’s overall theme-self-sustaining and faster growth can be achieved through comprehensive structural reforms and closer collaboration between the region’s policymakers and the international community.