Public Investment Growth And Debt Sustainability
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Public Investment Growth And Debt Sustainability
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Author : Mr.Andrew Berg
language : en
Publisher: International Monetary Fund
Release Date : 2012-06-01
Public Investment Growth And Debt Sustainability written by Mr.Andrew Berg and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-06-01 with Business & Economics categories.
We develop a model to study the macroeconomic effects of public investment surges in low-income countries, making explicit: (i) the investment-growth linkages; (ii) public external and domestic debt accumulation; (iii) the fiscal policy reactions necessary to ensure debt-sustainability; and (iv) the macroeconomic adjustment required to ensure internal and external balance. Well-executed high-yielding public investment programs can substantially raise output and consumption and be self-financing in the long run. However, even if the long run looks good, transition problems can be formidable when concessional financing does not cover the full cost of the investment program. Covering the resulting gap with tax increases or spending cuts requires sharp macroeconomic adjustments, crowding out private investment and consumption and delaying the growth benefits of public investment. Covering the gap with domestic borrowing market is not helpful either: higher domestic rates increase the financing challenge and private investment and consumption are still crowded out. Supplementing with external commercial borrowing, on the other hand, can smooth these difficult adjustments, reconciling the scaling up with feasibility constraints on increases in tax rates. But the strategy may be also risky. With poor execution, sluggish fiscal policy reactions, or persistent negative exogenous shocks, this strategy can easily lead to unsustainable public debt dynamics. Front-loaded investment programs and weak structural conditions (such as low returns to public capital and poor execution of investments) make the fiscal adjustment more challenging and the risks greater.
Debt Sustainability Public Investment And Natural Resources In Developing Countries
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Author : Mr.Giovanni Melina
language : en
Publisher: International Monetary Fund
Release Date : 2014-04-01
Debt Sustainability Public Investment And Natural Resources In Developing Countries written by Mr.Giovanni Melina and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-04-01 with Business & Economics categories.
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. It has two types of households, including poor households with no access to financial markets, and features traded and nontraded sectors as well as a natural resource sector. Public capital enters production technologies, while public investment is subject to inefficiencies and absorptive capacity constraints. The government has access to different types of debt (concessional, domestic and external commercial) and a resource fund, which can be used to finance public investment plans. The resource fund can also serve as a buffer to absorb fiscal balances for given projections of resource revenues and public investment plans. When the fund is drawn down to its minimal value, a combination of external and domestic borrowing can be used to cover the fiscal gap in the short to medium run. Fiscal adjustments through tax rates and government non-capital expenditures—which may be constrained by ceilings and floors, respectively—are then triggered to maintain debt sustainability. The paper illustrates how the model can be particularly useful to assess debt sustainability in countries that borrow against future resource revenues to scale up public investment.
Macroeconomic Challenges Of Structural Transformation
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Author : Lacina Balma
language : en
Publisher: International Monetary Fund
Release Date : 2015-07-20
Macroeconomic Challenges Of Structural Transformation written by Lacina Balma and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-07-20 with Business & Economics categories.
This paper analyzes the link between public investment, economic growth and debt sustainability in Sierra Leone using an inter-temporal macroeconomic model. In the model, public capital improves the productive capacity of private capital, generating positive medium and long term effects to increases in public investment. The model application indicates that a large increase in public investment would have positive macroeconomic effects in the medium term. However, since there is no free lunch, rigidities in tax adjustment would entail unrealistic and unachievable adjustment in the current spending to cover recurrent costs and ensure debt sustainability. A more ambitious increase in public investment would entail more fiscal adjustment, particularly if external commercial loans are secured to complement the adjustment. The model simulations also emphasize the importance of improvements in the structural economic conditions to reap growth dividends. In addition, even if the macroeconomic implications of public investment scaling-up can be favorable in the long term under changes in certain structural conditions, downside risks such as terms of trade shifts and Ebola-induced productivity shortfall expose the country to increased risk of unsustainable debt dynamics. This underscores the need to remove bottlenecks to growth and maintain prudent borrowing policies.
Striking An Appropriate Balance Among Public Investment Growth And Debt Sustainability In Cape Verde
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Author : Mr.Yibin Mu
language : en
Publisher: International Monetary Fund
Release Date : 2012-11-30
Striking An Appropriate Balance Among Public Investment Growth And Debt Sustainability In Cape Verde written by Mr.Yibin Mu and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-11-30 with Business & Economics categories.
Despite relatively fast economic growth over the past few years, Cape Verde’s public debt to GDP ratio has risenrapidly. Achieving an appropriate balance among public investment, growth, and debt sustainability has become a priority for the Cape Verdean authorities. The IMF-World Bank debt sustainability analysis (DSA) framework has helped the authorities monitor the risks of debt stress. However, the DSA has a number of limitations. This paper intends to complement the DSA by addressing aspects currently not covered by the DSA. The paper evaluates public investment scaling-up strategies in Cape Verde by customizing the Buffie and others (2012) model for Cape Verde and conducting various scenario and sensitivity analysis. The paper assesses Cape Verde’s public debt risks, taking into account the link between public investment and growth. The paper concludes that the size of scaling-up and aspects of the economic structure have significant impact on the outcome of the public investment. A very large surge in public investment may lead to a debt to GDP ratio that reaches dangerous levels based on the usual DSA criteria. A more moderate scaling-up of public investment may contribute better to stable and sustained growth over the medium and long run. In addition, it is critical that the authorities ensure the quality of public investment.
Public Investment Scaling Up And Debt Sustainability
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Author : Ahmed El-Ashram
language : en
Publisher: International Monetary Fund
Release Date : 2017-06-15
Public Investment Scaling Up And Debt Sustainability written by Ahmed El-Ashram and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-06-15 with Business & Economics categories.
The question of how scaling up public investment could affect fiscal and debt sustainability is key for countries needing to fill infrastructure gaps and build resilience. This paper proposes a bottom-up approach to assess large public investments that are potentially self-financing and reflect their impact in macro-fiscal projections that underpin the IMF’s Debt Sustainability Analysis Framework. Using the case of energy sector investments in Caribbean countries, the paper shows how to avoid biases against good projects that pay off over long horizons and ensure that transformative investments are not sacrificed to myopic assessments of debt sustainability risks. The approach is applicable to any macro-critical investment for which user fees can cover financing costs and which has the potential to raise growth without crowding-out.
As You Sow So Shall You Reap
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Author : Michal Andrle
language : en
Publisher: International Monetary Fund
Release Date : 2012-05-01
As You Sow So Shall You Reap written by Michal Andrle and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-05-01 with Business & Economics categories.
This paper presents an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes the links between public investment, economic growth, and debt sustainability. In the model, public capital is productive and complementary to private capital, generating positive medium and long-run effects to increases in public investment. The model application indicates that a very large increase in public investment would have positive macroeconomic effects in the long-run, but would require unrealistic increases in the tax burden to cover recurrent costs and ensure debt sustainability. More modest increases in public investment would require more feasible increases in the tax burden, particularly if the efficiency of tax collection is improved. The model simulations also emphasize the importance of improvements in the efficiency of public investment to reap welfare gains. However, even if the macroeconomic implications of public investment scaling-up can be favorable in the long-run under certain assumptions on rates of return and efficiency of investment, the transition period is challenging and exposes the country to increased risk of unsustainable debt dynamics. The model was also used to assess the growth projections underlying the standard Excel-based debt sustainability analysis for Togo.
Walking A Fine Line
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Author : Ms.Malangu Kabedi-Mbuyi
language : en
Publisher: International Monetary Fund
Release Date : 2016-04-11
Walking A Fine Line written by Ms.Malangu Kabedi-Mbuyi and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-04-11 with Business & Economics categories.
This paper analyzes the macroeconomics of scaling up public investment in Burkina Faso under alternative financing options, including through foreign aid and a combination of tax adjustment and borrowing. Our findings are twofold: (1) raising official development assistance in line with the Gleneagles agreement provides scope for financing public investment at low cost and would have positive, but somewhat moderate, effects on aggregate output—the growth dividends in the nontradables sector would be partially offset by the Dutch disease in the tradables sector; and (2) the massive investment scaling-up contemplated under Burkina Faso’s “accelerated growth” strategy, while boosting medium- and long-term growth, would lead to unsustainable debt dynamics under a plausible tax adjustment and realistic concessional financing. A more gradual approach to closing Burkina Faso’s infrastructure gap is therefore desirable because it would take into account the needed time for the country to address its capacity constraints and to further improve investment efficiency.
Natural Gas Public Investment And Debt Sustainability In Mozambique
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Author : Mr.Giovanni Melina
language : en
Publisher: International Monetary Fund
Release Date : 2013-12-23
Natural Gas Public Investment And Debt Sustainability In Mozambique written by Mr.Giovanni Melina and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-12-23 with Business & Economics categories.
Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability.
Public Debt Sustainability In Developing Asia
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Author : Benno Ferrarini
language : en
Publisher: Routledge
Release Date : 2012
Public Debt Sustainability In Developing Asia written by Benno Ferrarini and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Business & Economics categories.
Addressing the global financial crisis has required fiscal intervention on a substantial scale by governments around the world. The consequent buildup of public debt, in particular its sustainability, has moved to center stage in the policy debate. If the Asia and Pacific region is to continue to serve as an engine for global growth, its public debt must be sustainable. Public Debt Sustainability in Developing Asia addresses this issue for Asia and the Pacific as a whole as well as for three of the most dynamic economies in the region: the People’s Republic of China, India, and Viet Nam. The book begins with a discussion of the reasons for increased attention to debt-related issues. It also introduces fiscal indicators for the Asian Development. Bank’s developing member countries and economies. The sustainability of their debt is assessed through extant approaches and with the most up-to-date data sources. The book also surveys the existing literature on debt sustainability, outlining the main issues related to it, and discusses the key implications for the application of debt sustainability analysis in developing Asia. Also highlighted is the importance of conducting individual country studies in view of wide variations in definitions of public expenditure, revenues, contingent liabilities, government structures (e.g., federal), and the like, as well as the impact of debt on interest rates. The book further provides in-depth debt sustainability analyses for the People’s Republic of China, India, and Viet Nam. Public Debt Sustainability in Developing Asia offers a comprehensive analytical and empirical update on the sustainability of public debt in the region. It breaks new ground in examining characteristics that are crucial to understanding sustainability and offers richer policy analysis that should prove useful for policymakers, researchers, and graduate students.
Collect More Spend Better
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Author : Mr.Manuk Ghazanchyan
language : en
Publisher: International Monetary Fund
Release Date : 2017-01-24
Collect More Spend Better written by Mr.Manuk Ghazanchyan and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-01-24 with Business & Economics categories.
We use a dynamic small open economy model to explore the macroeconomic impact of alternative public investment scaling-up scenarios, analyzing how improving the efficiency of capital spending and of tax revenue collection affect growth and debt sustainability for three fast-growing Southeast Asian economies: Cambodia, Sri Lanka, and Vietnam. We show that a gradual public investment profile is more favorable than front-loading capital spending because we assume governments are able to gradually learn how to invest more efficiently, accelerating public capital accumulation and therefore growth. We discuss the pros and cons of alternative financing options and identify the financing mix that generates the best macroeconomic outcome. Sometimes overlooked, improving the efficiency of revenue collection over time may ease the burden of fiscal adjustment, achieving higher GDP growth with substantially lower debt-to-GDP ratios, and will help policymakers efficiently meet the challenge of addressing large infrastructure gaps while maintaining debt sustainability.