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Mr. Marcos Poplawski Ribeiro, Mr. Mauricio Villafuerte, Mr. Thomas Baunsgaard, and Christine J. Richmond

volatility and uncertainty of resource prices and production. 24 This implies that part of any resource revenue windfall should be saved and possibly drawn upon during a resource “bust.” Moreover, the higher the dependency on resource revenue, the stronger is the case for precautionary saving. The need for precautionary saving depends on the expected behavior of commodity prices and the planning horizon (which can differ across both commodity types and countries). The theoretical literature has contradictory findings: for example, Bems and Carvalho Filho (2011) find

International Monetary Fund. Fiscal Affairs Dept.

. Figure 1.17 . Saving Rates during Boom Years Some resource-rich countries increased their net financial assets (or reduced net debt) during the 2003–08 resource revenue windfall. Source: IMF staff estimates. Note: Saving rates are calculated as the change in net assets as a percentage of commodity revenue during the 2003–08 and 2009–14 periods (used the longest sample available for each country within the specified periods). Countries included in the sample are Angola, Algeria, Azerbaijan, Chile, Equatorial Guinea, Iran, Kazakhstan, Kuwait, Libya, Nigeria

International Monetary Fund. Fiscal Affairs Dept.


This issue of the Fiscal Monitor examines the conduct of fiscal policy under the uncertainty caused by dependence on natural resource revenues. It draws on extensive past research on the behavior of commodity prices and their implications for macroeconomic outcomes, as well as on extensive IMF technical assistance to resource-rich economies seeking to improve their management of natural resource wealth.

International Monetary Fund. Asia and Pacific Dept

order to minimize vulnerabilities to external shocks the fiscal framework should be anchored on an expenditure rule that delinks expenditure from volatile resource revenues thus avoiding pro-cyclical policies. Coordination with monetary and external sector policies is also essential to avoid macroeconomic imbalances and inflationary pressures from domestic spending of natural resource revenue windfalls. Structural reforms to improve efficiency of non-resource sector will also be important. This would help accelerate the process of economic diversification to avoid

International Monetary Fund. Asia and Pacific Dept

, further limiting options for monetary policy, which highlights the important role of fiscal and structural policies. Figure 4.10. Resource Revenue Spending From 2002 to 2006 1 (In percent) Sources: IMF, World Economic Outlook; IMF country reports; and staff calculations. 1 Defined as the ratio of the increase in non-resource fiscal deficit (in 2002- 06) to the increase in resource revenues. For the 2002–06 period as a whole, most countries have not fully spent the resource revenue windfall. Mongolia, Lao P.D.R., and Papua New Guinea spent (as measured

International Monetary Fund. African Dept.

-resource GDP; and using the perpetuity or annuity value of the financial wealth of the resource revenue windfall) which can determine the sustainable path for the non-oil primary deficit. 9 These tools can be used either for investment scaling-up or scaling-down scenarios. 10 The benchmark is significant loosened to an NOPD of 4.3 when the annuity allocation principle is considered but gross financial savings becomes negative. 11 We also explored the effect of doubling the efficiency of public investment (i.e., the elasticity of investment with

International Monetary Fund. Middle East and Central Asia Dept.

revenue windfall) which can determine the sustainable path for the nonresource primary deficit. 11 These tools can be used either for investment scaling-up or scaling-down scenarios. 12 These approaches could include social spending, which might impact growth as public investment does. 13 For long-term sustainability analysis in resource-rich countries, the nonresource primary balance (NRPB) is a good measure of the macro-fiscal stance. The NRPB identifies the impact of government operations on domestic demand, because resource revenues typically

Mr. Krishna Srinivasan, Ms. Inci Ötker, Ms. Uma Ramakrishnan, and Mr. Trevor Serge Coleridge Alleyne

(including by an SWF), and should also be considered as part of an optimal strategy to manage a resource revenue windfall ( Takizawa, Gardner, and Ueda 2004 ; Venables 2010 ; van der Ploeg and Venables 2011 ; Araujo and others 2012 ). This should be done through a sustainable investment approach—in which a combination of raising public investment and saving some of the resources in a stabilization fund to support ongoing maintenance is used to preserve investment efficiency. 23 A conservative scaling-up schedule for public investment that is consistent with both

International Monetary Fund
This paper aims to widen the prism through which Fund policy analysis is conducted for resource-rich developing countries (RRDCs). While all resource-rich economies face resource revenue exhaustibility and volatility, RRDCs face additional challenges, including lack of access to international capital markets and domestic capital scarcity. Resource exhaustibility gives rise to inter-temporal decisions of how much of the resource wealth to consume and how much to save, and revenue volatility calls for appropriate fiscal rules and precautionary savings. Under certain conditions, it would be optimal for a significant share of a RRDC’s savings to be in domestic real assets (e.g., investment in domestic infrastructure), though absorptive capacity constraints need to be tackled to promote efficient spending and short-run policies are needed to preserve macroeconomic stability. The objective of this paper is to develop new macro-fiscal frameworks and policy analysis tools for RRDCs that could enhance Fund policy advice.
International Monetary Fund

, as well as maintaining a foreign asset cushion that would help mitigate external shocks. Traditional PIH consumption-smoothing frameworks for optimal net foreign asset and current account (savings minus investment) dynamics are inadequate for capital-scarce RRDCs, as they do not account for investment decisions. In this section, a simple analytic framework that considers several features of RRDCs tracks current account dynamics in the context of resource revenue windfalls, emphasizing the role of consumption and investment behavior. The results, which are