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3. Sub-Saharan Africa’s Natural Resource Exporters: Recent Performance and Policy Challenges

Author(s):
International Monetary Fund. African Dept.
Published Date:
May 2012
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INTRODUCTION AND SUMMARY

Exhaustible natural resources account for a large share of output and export earnings in many sub-Saharan African (SSA) countries. Rising world commodity prices, coupled with new resource discoveries, have stimulated growth in these economies during the past decade. Several additional countries in the region are also poised to become significant resource exporters in the near future. This chapter examines the region’s natural resource exporters and the policies that can help them make effective use of these resources to support economic development.1

Ensuring that these resources will lead to long-term economic development entails many policy challenges. Some of these challenges involve the natural resource sector’s tax/licensing regime and the state’s role in the sector. Other policies will need to contend with the fact that government revenues will decline as resources are depleted, requiring decisions on (i) how much of these revenues are consumed today, and (ii) how the resources not consumed today will be transferred to future generations. And yet another set of policy concerns stem from the high volatility of resource prices, necessitating an appropriate framework for macroeconomic management in the face of large fluctuations in export revenues, budget receipts, and, in some cases, foreign direct investment.

Based on recent experiences working with member countries, the International Monetary Fund (IMF) has been considering the appropriate approaches to these issues in developing countries.2 Work is underway and close to completion on the three policy areas cited above; work already completed includes Daniel, Keen, and McPherson (2010), Baunsgaard and others (2012), and Akitoby and Coorey (2012). This chapter addresses aspects of the policy issues cited above, but does not attempt to provide comprehensive recommendations.

The chapter’s main findings are:

  • Natural resource exports are an important contributor to merchandise exports in close to half of the 45 countries in sub-Saharan Africa. Several countries are expected to soon join the ranks of significant natural resource exporters, given recent discoveries and exploration results.
  • Natural resource revenues contribute significantly to national budgets in 10 sub-Saharan African countries, with that number also expected to rise in the coming years. The share of resource exports that accrue to national budgets varies widely across countries, with oil producers being the most successful in terms of revenue extraction.
  • The present value of budget revenues likely to be collected from natural resource wealth is large in relation to nonresource GDP in many countries, notably in major oil exporters.
  • Natural resource exporters have experienced faster economic growth than other sub-Saharan African economies during 2000–12, but the improvement in social indicators is not noticeably faster. Improving service-delivery capacity may be part of the answer to connecting economic growth and improved living standards in resource exporting countries.
  • Countries that obtain considerable fiscal revenue from natural resources have experienced significantly higher volatility in exports, revenue, and nonresource GDP growth than other sub-Saharan African economies. Some countries have developed effective macroeconomic policy frameworks to manage this volatility, but more-structured policy frameworks are needed in several countries. Fiscal policy in these economies has become less procyclical over the past decade, although the boom-bust cycle has not been eliminated.
  • Analysis of international reserves adequacy in resource exporters suggests that a further buildup of reserves is warranted in most countries, given their vulnerability to commodity price shocks. However, more detailed, country-specific analysis would be needed to draw firm conclusions.
  • In many resource-dependent countries, non-resource budget deficits currently lie above levels consistent with spreading the proceeds from existing resource wealth evenly over time. Drawing policy prescriptions from this would require careful examination of the countries’ fiscal position, including levels and quality of public investment, along with an assessment of prospects for new resource discoveries.

KEY FEATURES AND RECENT EXPERIENCES

This section profiles sub-Saharan Africa’s natural resource exporters, and explores how resource dependence has influenced economic development patterns. Countries are deemed significant exporters of natural resources if such exports exceeded one-quarter of total merchandise exports in 2005–10. Among this group of natural resource exporters, countries are deemed “fiscally dependent” on natural resources if revenues derived from natural resource exploitation, on average, exceeded one-fifth of budgetary revenues in the same period.3

KEY CHARACTERISTICS OF THE RESOURCE EXPORTERS

Twenty of sub-Saharan Africa’s 45 countries can be viewed as significant exporters of natural resources, with the bulk of the remaining countries dependent on exports of agricultural commodities (Box 3.1). The grouping includes seven oil exporters; nine exporters of gold, diamonds, and other precious stones; two base metal exporters; and two countries that export a mix of mineral products (Figure 3.1). The significance of resource exports, both in relation to merchandise exports and to nonresource GDP, is highest for the oil exporters, with the value of resource exports exceeding the size of nonresource GDP in several countries (Table 3.1).

Figure 3.1.Sub-Saharan Africa: Major Nonrenewable Exports

Source: IMF, African Department Database.

Table 3.1.Resource-Intensive Countries: Selected Resource Indicators, 2010(Percent of nonresource GDP, unless otherwise noted)
Resource

exports
Resource

revenue
Resource

revenue

(percent of

total revenue)
GDP per Capita

(U.S. dollars)
GNI per capita

(U.S. dollars)
Subterranean

wealth1
State partnership

in resource

extraction

(percent of total)
Extractive

Industry

Transparency

Initiative

status2
Oil exporters
Angola110.659.875.94,4233,9401,121.467.0
Cameroon10.54.826.61,1431,180167.045.0Candidate
Chad60.226.167.6676620357.50.0Candidate
Congo, Republic of224.192.079.02,9432,1501,548.10.0Candidate
Equatorial Guinea171.666.488.119,99814,540141.4Partial
Gabon116.331.653.98,6437,740919.725.0 – 35.0Candidate
Nigeria54.327.272.21,2221,180772.3PartialCompliant
Other fiscally dependent countries
Botswana38.213.431.37,4036,790199.350.0
Congo, Democratic Republic of68.65.526.5199180135.930.0Candidate
Guinea33.65.024.845240044.030.0Candidate
Other countries
Central African Republic2.80.98.0457470n.a.0.0Compliant
Ghana12.00.53.71,2831,23049.10.0Compliant
Mali16.83.317.160260075.60.0Compliant
Namibia17.41.85.85,3304,50014.450.0
Niger11.01.711.835837026.215.0 – 40.0Compliant
Sierra Leone11.10.32.4325340n.a.0.0Candidate
South Africa8.60.62.07,2756,090n.a.Small
Tanzania7.2n.a.n.a.527530n.a.0.0Candidate
Zambia51.72.710.91,2531,07031.415.0 – 20.0Candidate
Zimbabwe24.40.82.5595460n.a.Partial
Sources: U.S. Geological Surveys; Mbendi. com; World Bank, World Development Indicators; IMF, African Department database; and IMF staff estimates and calculations.

Subterranean wealth is defined as the net present value of resource wealth times the implicit tax rate (ratio of resource revenues to resource exports, 2005–10).

Liberia is EITI compliant but is not included in the grouping of resource exporters.

Sources: U.S. Geological Surveys; Mbendi. com; World Bank, World Development Indicators; IMF, African Department database; and IMF staff estimates and calculations.

Subterranean wealth is defined as the net present value of resource wealth times the implicit tax rate (ratio of resource revenues to resource exports, 2005–10).

Liberia is EITI compliant but is not included in the grouping of resource exporters.

Of these 20 resource exporters, 10 countries are fiscally dependent on budget revenues derived from natural resource production. This grouping includes the seven oil exporters, Botswana, the Democratic Republic of the Congo (DRC), and Guinea. By contrast, except for Mali, the other resource exporters receive less than 15 percent of budgetary revenues from natural resource production. Moreover, only two of these countries (Niger, Zambia) are projected to increase markedly their revenue take from natural resources in the 2011–16 period.

For several countries, the prospective public revenues implied by existing resource wealth is sizable relative to current nonresource GDP, although there is significant variation across countries. These calculations should be considered illustrative, rather than precise; they are based on estimates of: (i) the currently identified resource base; (ii) the share of resource revenues expected (based on recent experience) to accrue to the state;4 and (iii) plausible assumptions regarding resource price developments, extraction rates, and discount rates (to calculate present values of future flows).5 Countries that can expect large future revenue flows from the identified resource base include the main oil exporters, Botswana (although likely to decline as a share of nonmineral output), and the Democratic Republic of the Congo. There are also several countries (for example, Ghana, Liberia, Mozambique, Uganda) that, based on recently discovered resources, can anticipate sizable revenue inflows in the future, given an appropriately structured taxation framework.

Box 3.1.The Distribution of Nonrenewable Natural Resources in Sub-Saharan Africa

About 15 percent of the annual output of sub-Saharan Africa and 50 percent of its exports come from nonrenewable natural resources. In only 20 of the 45 countries in the region are natural resources a major export. Seven of these countries are oil exporters, accounting for more than half of the region’s natural resource exports. The other 13 resource-rich economies receive at least a quarter of their export proceeds from mining activities. Gold, diamonds, and other precious stones are the major commodity exports of most of the region’s non-oil resource-rich economies. A few, however, depend heavily on base metals and uranium (Niger, Zambia) or benefit from a broad mixture of products (the Democratic Republic of the Congo, Guinea, Namibia, Sierra Leone).

Figure 1.Sub-Saharan Africa: Resource Exports, Average 2005–101

Source: IMF, African Department database.

1 Data for Côte d’Ivoire and Senegal excludes re-exports of refined oil products.

Given wide variations in the costs of exploiting different nonrenewable resources, and in the ability of tax regimes to harness the associated rents, government revenue from natural resource exploitation differs substantially among countries. While much of this analysis focuses on the 20 sub-Saharan African natural resource exporters, special attention is also paid to the 10 economies deemed fiscally dependent on natural resources.

Figure 2.SSA Resource-Intensive Countries: Resource Revenue, Average 2005–10

Source: IMF, African Department database.

Some countries currently listed as nonresource-rich have significant resource export potential. For instance, Mozambique, São Tomé and Príncipe, and Uganda are among several countries seeking to exploit oil and gas reserves; prospects for offshore oil deposits in Liberia look bright; and Malawi has sizeable uranium deposits. Some resource exporters, such as Ghana (oil) and Sierra Leone (iron ore), are also broadening the spectrum of their commodity exports. As Collier (2011) has pointed out, it is likely that the bulk of vast exploitable natural resources remain to be revealed, because the identified level of such resources in sub-Saharan Africa is currently far below that of other areas.

This box was prepared by Jon Shields.

The focus on prospective public revenues from resource exploitation, rather than on prospective contributions to future GDP, reflects the fact that resource extraction is typically capital-intensive, with international companies providing the bulk of the capital and expertise in most of sub-Saharan Africa.6 As a result, much of the income generated by resource extraction accrues to foreigners, with taxes and other revenues collected by the state often representing the main benefit accruing to nationals. That said, employment in the resource sector can provide an important income source for nationals in some industries, while local purchases of inputs by the resource projects also generates domestic incomes (Table 3.1).

The design of an appropriate licensing and taxation framework is of central importance if countries are to maximize the benefits they receive from their endowment of natural resources; see Daniel, Keen, and McPherson (2010) for extensive discussion of the issues involved. The tax environment within which mineral firms operate should be transparent, provide a level playing field for investors, and ensure adequate incentives for firms to take the risks involved in resource exploration and extraction.

Sub-Saharan Africa’s resource exporters have been eager to join the global Extractive Industries Transparency Initiative (EITI), launched in 2002. EITI participants are expected to meet specific governance standards in the resource sector, especially in regard to the transparency of revenue flows through the monitoring, reconciliation, and publication of corporate payments to the state and recorded government revenues for the sector. Fourteen resource exporters in the region are currently participating in the EITI. All but one has completed at least one reconciliation report, and five have been declared fully compliant with EITI requirements.

MACROECONOMIC DEVELOPMENTS IN 2000–11

Growth

Contrary to the “resource curse” experience during the 1980s and 1990s, GDP per-capita growth has, on average, been higher in resource exporters than in other sub-Saharan African countries since 2000, and higher still in the fiscally dependent subsample (Figure 3.2, left panel).7 The stronger growth reflects not only favorable commodity-price developments (Box 3.2), but also the effects of new resource discoveries (for example, in Angola, Equatorial Guinea, and Tanzania). The strong performances, if sustained, would imply that the perverse effects of resource wealth cited in the “resource curse” literature—such as the costs of the boom-bust cycle and the erosion of institutional capacity—have been either partly tamed (see below) or are playing a less significant role.

Figure 3.2.Resource-Intensive Sub-Saharan African Countries: Real Resource and Nonresource GDP Growth

Sources: IMF, World Economic Outlook database; IMF, African Department database.

The direct contribution of natural resource production to output expansion varies markedly across countries, from being the dominant contributor to output growth in Equatorial Guinea and the Democratic Republic of the Congo to the more modest contributions observed in South Africa and Zambia (Figure 3.2, right panel). But in many countries, the role of the natural resource sector in driving growth is significantly understated by looking only at production-side measures of the sectoral contribution to output growth. Angola is a good case in point: with oil revenues accounting for almost all merchandise exports, and the nonresource sector consisting in the main of nontradables, it is surging oil output and revenues that is the driver of economic growth, delivering the foreign exchange to finance imports and facilitating the associated expansion of nontradables.

Strong output growth following the discovery of natural resources has changed the composition of output quite markedly among resource exporters, but the effect on the composition of employment has been modest (Box 3.3). In part, this reflects the normally capital-intensive nature of resource production, but it also indicates the emergence of a sharply dualistic economic structure in which low-productivity sectors (such as agriculture and many services) remain largely untransformed. The spillover effects of resource-sector expansion on poverty will likely remain modest until policies targeted at the dominant source of employment (agriculture) are put in place, helped by the availability of resource revenues.

Box 3.2.Global Commodity Price Movements

Natural resource exporters have benefited from a sharp increase in commodity prices over the past decade (Figure 1), while also experiencing increased price volatility. The increase in prices started with the global recovery in 2003 and accelerated in the first half of 2008, before the eruption of the global financial crisis in the last quarter of 2008 led to sharp price drops. Commodity prices recovered beginning in the first quarter of 2009 through April 2011 before easing again, mainly because of a weaker global demand outlook.

Figure 1.Real International Commodity Prices1

Sources: IMF, Commodity Price System; and IMF, Information Notice System.

1 Indices of nominal prices deflated by the U.S. CPI.

The increased level and volatility of commodity prices during the past decade have been attributed to a number of factors. Business cycles in major industrial countries and rapidly rising demand in emerging economies (notably BRIC countries) have been the main factors in driving prices (IMF, 2010 and 2012; World Bank, 2009). The literature suggests that global supply shocks typically do not have a significant long-run impact on most commodity prices, although they may increase volatility. On the other hand, global demand shocks have persistent effects on prices (IMF, 2012). Fluctuations in exchange rates of key currencies, especially between the U.S. dollar and the euro, affect price volatility. Finally, some have argued that the frequency and the magnitude of price swings have become more decoupled from market fundamentals in the short run because of the rapid development of commodities as an asset class, but the jury is still out on this issue.1

From both a cyclical and long-term perspective, real prices of commodities are at their highest levels since the early 1990s, and remain close to or above the peaks reached in 2008. In particular, since the 1990s, the real prices of sub-Saharan Africa’s major nonrenewable exports, energy and metals, have more than tripled and more than doubled, respectively. Surging price levels, however, have been accompanied by increasing short-term volatility in recent years.

This box was prepared by Jean-Claude Nachega.1 See, for instance, IMF (2010), which argues that trend movement in commodity prices are not significantly affected by speculative activity.

Export Performance and the Real Exchange Rate

Experiences in sub-Saharan African countries sometimes run counter to the presumption that strong growth of natural resource exports will be associated with an appreciation of the real exchange rate. Examination of the evolution of the real exchange rate across sub-Saharan Africa’s natural resource exporters since 2000 reveals some interesting patterns (Figure 3.3). For oil exporters and copper/cobalt exporters (Zambia), the movement of the real exchange rate has been broadly aligned with that of real export prices.8 However, for the two other groupings (“gold exporters” and “others”), the steady rise of the resource price index has not been accompanied by significant appreciation of the real exchange rate.9 The key explanatory factors appear to be the share of resource income accruing to nationals (high for “oil exporters,” lower for “others”) and the importance of resource exports relative to total exports. The real exchange rate for sub-Saharan African countries in the nonresource exporter group has shown a slight trend appreciation during the 2000s (bottom right panel of Figure 3.3).

Figure 3.3.Sub-Saharan Africa: Resource Price Index and Real Effective Exchange Rate, 2000–11

Sources: IMF, African Department database; World Bank, Commodity Price Markets; and IMF, Information Notice System.

1 Excluding Democratic Republic of Congo.

Furthermore, the development of nonresource exports has been relatively weak in many resource exporting countries, particularly for oil exporters, although there is significant variation across countries (Figure 3.4). Nonresource export performance has been particularly weak in the oil exporting countries, with the exception of the Republic of Congo, where sugar and other commodity exports have grown significantly. Resource exporters recording strong nonresource export performances are typically not fiscally dependent; examples include Ghana, South Africa, and Tanzania. Some countries exporting natural resources have sought to move downstream into domestic processing of raw resources, including the cutting/refining of diamonds (Botswana).

Figure 3.4.Sub-Saharan Africa: Total Nonresource Exports, 2001–11

(Average annual difference in level as a percentage of nonresource GDP)

Sources: IMF, African Department database; and IMF, Strategic, Policy, and Review Department survey data.

Box 3.3.Structural Transformation among sub-Saharan African Countries

As countries become more affluent, the agricultural sector shrinks dramatically in relation to total economic activity. The structural transformation that accompanies economic development is generally characterized by four features: a falling share of agriculture in total output; a falling share of agriculture in total employment; a rising share of urban economic activity and increased migration of rural workers to urban settings; and a demographic transition that leads to a spurt in population growth (Timmer, 2009).

Figure 1.Sub-Saharan Africa: Agriculture Output and GDP per Capita, 2009

Sources: World Bank, World Development Indicators; and International Labour Organization.

Figure 2.Sub-Saharan Africa: Agriculture Employment Shares and GDP per Capita, 2009

Sources: World Bank, World Development Indicators; and International Labour Organization.

Consistent with this international experience, sub-Saharan African countries (including resource exporters) are characterized by a hyperbolic linkage between agriculture’s share of GDP and real per capita GDP. What is striking for several natural resource exporters is that the agricultural sector’s share of total employment is significantly larger than would be suggested by either GDP per capita or agriculture’s share in GDP, reflecting very low productivity levels in the sector. Intuitively, the discovery of nonrenewable resources has catapulted these economies up the per capita ladder without (for the time being) producing the kind of structural transformation typically associated with economic growth.

This box was prepared by Alun Thomas.

Surging commodity prices and new resource discoveries can drive economic growth, but they can also produce sharp real exchange rate appreciation, thereby squeezing the competitiveness of other sectors that produce tradable goods, most notably nonresource exports. Whether this should be considered a harmful development (true “Dutch Disease”) or merely the natural evolution of an economy specializing in those products in which it has a comparative advantage, depends on several factors—most importantly, the scale and expected longevity of natural resource production and the extent to which the sectors being squeezed (for example, manufacturing) have special features/dynamism that contribute to faster economic growth over the medium term. If resource production is likely to shrink over time, making diversification into other tradable goods/services a prerequisite for long-term development, policies to support dynamic sectors may be advisable. A first step in that direction would be to move vigorously to improve the business climate, build infrastructure, and invest in human capital.

Public Finances

Fiscally dependent resource exporters collect exceptionally high levels of budget revenues relative to nonresource GDP (Figure 3.5, top panel). By contrast, the average revenue take in other resource exporters does not differ noticeably from that in nonresource exporters. The nonresource revenue take is, unsurprisingly, lower in fiscally dependent resource exporters than in nonresource exporters, and it is much lower than in resource-intensive countries outside of sub-Saharan Africa (Figure 3.5, center panel).10 In the case of “other resource exporters,” nonresource revenue performance has improved in recent years to match the level in nonresource exporters.

Figure 3.5.Sub-Saharan Africa: Fiscal Revenues and Expenditures, 2000–11

(Unweighted average)

Sources: IMF, African Department database; and IMF, Strategy, Policy, and Review Department survey data.

With abundant revenues, budgetary outlays are high in relation to nonresource GDP in most, but not all fiscally dependent economies. Most of the oil producers, along with Botswana, record high levels of expenditures in relation to nonresource GDP (Figure 3.5, bottom panel); by contrast, expenditures in Cameroon, the Democratic Republic of the Congo, and Guinea are more modest, reflecting lower mineral revenues and thus more-constrained fiscal space. The differences in spending levels between “other resource exporters” (whose mineral receipts are relatively modest) and other sub-Saharan Africa economies are not noteworthy.

VOLATILITY OF THE MACROECONOMIC AGGREGATES

Resource exporters experience higher volatility in export prices than other countries in the region, but its macroeconomic impact is noteworthy only in fiscally dependent countries. Because global prices of natural resources are more volatile than prices of other goods, it is unsurprising that the standard deviation for export prices among the resource exporters is higher than for other sub-Saharan African countries (Figure 3.6, top left panel). Higher export-price volatility translates into higher volatility of budgetary revenues only in the fiscally dependent economies (most notably the oil exporters)—also unsurprising, because it is only in these economies that the resource sector contributes significantly to budget revenues.

Figure 3.6.Sub-Saharan Africa: Volatility Indicators, 2000–10

Sources: IMF, African Department database; and IMF, Strategic, Policy, and Review Department survey data.

The linkage between budgetary revenues and outlays plays an important role in contributing to the macroeconomic volatility in fiscally dependent economies. Budgetary expenditures are significantly more volatile in fiscally dependent resource exporters than elsewhere in the region (or, for that matter, elsewhere in the world). This trend suggests some element of “spend-as-you-go” fiscal practices in countries where the natural resource sector is a significant contributor to budget revenues. Finally, nonresource output growth is significantly more volatile in fiscally dependent resource exporters than in the region’s other economies, but the volatility of nonresource GDP in other resource exporters is, on average, not noticeably different from the level of volatility observed in nonresource exporters.

SOCIAL INDICATORS IN NATURAL RESOURCE EXPORTING COUNTRIES

International experience indicates that in developing economies, an abundance of natural resources does not necessarily translate into less poverty and better social indicators as compared to similarly positioned countries without natural resources. One strand of literature has explored the phenomenon of the so-called “resource curse,” in which new discoveries and price booms in the resource sector are perversely associated with a slowing of economic growth over time.11 Others have noted that, while resource exploitation can stimulate GDP growth, the fruits of production may accrue only to a small elite, leaving the masses largely excluded from the benefits of growth.12 The discussion here examines whether economic growth in natural resource exporters in recent years has translated into significant improvements in living standards.

A first point to note is that GDP per capita can be a misleading measure of the income accruing to nationals in resource-rich economies, with corresponding caveats regarding the interpretation of GDP growth rates. With natural resource extraction typically involving foreign-owned firms, capital, and skilled personnel, a significant share of the value of resource output accrues to foreigners, rather than nationals. As Figure 3.7 illustrates, the disparity between GDP and gross national income (GNI) is relatively large for the oil-producing countries, but much less noticeable in other resource exporters or nonresource-intensive economies.13 The disparity as one would expect, is most marked for economies in which the share of the oil sector in GDP is large (for example, Equatorial Guinea and the Republic of Congo).

Figure 3.7.Sub-Saharan Africa: GDP Minus GNI Per Capita, Selected Years1

Source: World Bank, World Develoment Indicators.

1 Angola, Burundi, Comoros, the Republic of Congo, Equatorial Guinea, Ghana, Guinea-Bissau, Liberia, Niger, Nigeria and Rwanda correspond to 2000; Malawi (2000–01); Togo (2000–04); Benin (2000–05); Burkina Faso, Cape Verde, the Central African Republic, Chad, Mali and Seychelles (2000–06); Eritrea, The Gambia, Madagascar, and Zambia (2000–07); in all cases due to data availability. No GNI data was available for São Tomé and Príncipe. Liberia and Lesotho are excluded due to inconsistencies in the data.

Even so, GNI per capita in sub-Saharan Africa is, on average, higher in natural resource exporters than in nonresource exporters, but this income advantage is not reflected, on average, in significantly higher scores on the human development index (HDI) (Figure 3.8).14 There are dangers in reading too much into a comparison of averages for country groups that are themselves highly diverse in terms of income levels. But the broad averages, along with individual country comparisons (for example, Angola versus Ghana), support the concerns frequently expressed about income inequality in resource-rich economies.15

Figure 3.8.Sub-Saharan Africa: Selected Development lndicators, 2010

Source: World Bank, World Development Indicators.

Cross-country comparisons support the view that faster growth, at least in the oil producers, does not necessarily translate into faster improvements in aggregate social welfare (Figure 3.9). But the HDI probably lags changes in income levels, and the analysis would need to be conducted over a significantly longer time to yield robust conclusions. It should be noted that several oil exporters experiencing strong GDP growth record significant improvements in their HDI score (for example, Angola); growth definitely contributes to social improvement, but not with the same payoff as observed in nonresource exporters.

Figure 3.9.Sub-Saharan Africa: Selected Development Indicators, 2005–10

Source: World Bank, World Development Indicators.

Examination of the movements of selected social indicators in the 2000–09 period provides a mixed picture regarding the relative performance of natural resource exporters and other countries (Figure 3.10). Faster growth among the natural resource exporters has been accompanied by larger improvements in measles immunization, but somewhat smaller improvements in literacy, infant mortality, and school enrollment rates compared with nonresource economies.

Figure 3.10.Sub-Saharan Africa: Social Indicators and Resource Abundance, 2000–09

Source: World Bank, World Development Indicators.

INSTITUTIONAL QUALITY AND RESOURCE ABUNDANCE

A large body of empirical evidence supports the proposition that good institutions contribute to better economic performance in developing economies.16 Intuitively, better institutional capacity (as reflected in rule of law, low levels of corruption, etc.) contribute to faster growth via the increased certainty they provide to private investors, the reduced incentives for wasteful rent-seeking behavior, and, arguably, better results from public sector investments. This section sketches some stylized facts about the quality of institutions in sub-Saharan Africa’s natural resource exporters, while recalling that this grouping includes such diverse states as the Democratic Republic of the Congo and South Africa. The focus is on three discrete measures of institutional quality—control of corruption, rule of law, and government effectiveness.17

There is a negative correlation between resource dependence and the quality of institutions among resource exporters in the region (Figure 3.11), but causation is far from clear. Do resource-rich Democratic Republic of the Congo and Angola score low on institutional quality because they are rich in natural resources or because of the ravages of civil wars? Were the conflicts in these countries, in turn, so drawn out because of competition for control of these natural resources—competition from both inside and outside the country? Identifying the ways in which resource abundance affects institutional development is not straightforward.

Figure 3.11.Sub-Saharan Africa: Resource Dependence and Institutional Quality

Sources: World Bank, Worldwide Governance Indicators; and IMF, African Department database.

On a more encouraging note, the data for the three indicators suggest that resource exporters may be achieving institutional improvements at a faster pace than in other sub-Saharan African economies. Specifically, a larger proportion of resource-abundant countries have made progress in each of the three measures of institutional quality in 2000–09 (Figure 3.12, left panel), and the proportion of countries achieving progress in all three categories is larger for resource exporters than other countries (Figure 3.12, right panel).

Figure 3.12.Sub-Saharan Africa: Recent Changes in the Quality of Institutions

Source: IMF staff calculations with data from the World Bank, Worldwide Governance Indicators. See Kaufmann, Kraay, and Mastruzzi (2010).

MACROECONOMIC POLICY MANAGEMENT ISSUES

As noted at the outset, countries with a significant endowment of nonrenewable natural resources face several distinct policy challenges. The discussion of policy-related issues in this section is selective, leaving a more-comprehensive policy analysis to other work being undertaken by IMF staff. Topics examined here include: (i) the macroeconomic policy frameworks currently employed by those sub-Saharan African countries that are particularly vulnerable to resource price volatility; (ii) the experience in recent years in delinking fiscal spending patterns from volatile revenue flows, breaking the procyclical fiscal policies that contributed to the boom-bust cycle; (iii) the appropriate level of foreign reserves for natural resource exporters; and (iv) the sustainability of current fiscal policy stances over the medium term, given the existing stock of natural resources.

MACROECONOMIC POLICY FRAMEWORKS IN SELECTED RESOURCE EXPORTERS

Fiscally dependent resource exporters display a variety of institutional arrangements to manage resource revenue. Some countries consciously adopt a “revenue windfall” strategy by making conservative export-price assumptions when formulating annual budgets.18 Some countries have introduced savings or stabilization funds, although, in practice, the linkages between these funds and budget operations can involve significant discretion. Discussions of appropriate fiscal frameworks have been an important component of the IMF’s policy dialogue with sub-Saharan African countries that rely on large and volatile resource revenues to fund national budgets.19

Some countries have developed explicit fiscal frameworks aimed at saving resources for the future and/ or creating a fiscal buffer to help insulate budget spending from revenue volatility:

  • Since 1994, fiscal policy in Botswana has been guided by a Sustainable Budget Index principle, which seeks to ensure that “noninvestment” spending is financed only with nonresource revenue—with resource revenues used either to finance investment or saved for the future. There is also a medium-term fiscal objective (on the cumulative budget balance over the five-year period of each development plan) and a cap on the expenditure-to-GDP ratio, although these objectives are not binding constraints. Over time, Botswana has built a large stock of government savings in its Pula Fund, managed by the Bank of Botswana. While there are no firm rules guiding the flows of funds into and out of the Pula Fund, the fund is intended to hold resources for future generations, while also serving as a revenue stabilization mechanism when resource revenues fall sharply (as occurred during the recent global crisis).
  • Since 2004, Nigeria has adopted an oil price rule in planning budgetary revenues, linked to a historical moving average of oil prices but also adjusted in budget negotiations. Oil revenues in excess of the budget target were deposited in the Excess Crude Account (ECA), which could be drawn upon when revenues fell short of target. A large balance was built up in the ECA as oil prices surged through 2008, with these funds then being drawn down when oil prices dropped in 2009. Withdrawals from the ECA continued during 2010–11, even as oil prices recovered sharply—undermining the stabilization function of the ECA. Legislation was passed in 2011 to replace the ECA mechanism with a sovereign wealth fund (SWF), which contains clearer rules governing the flow of funds into and out of the SWF. Nigeria’s SWF has three distinct sub-components: a stabilization fund, a fund to finance domestic priority investments, and a fund for longer-term savings purposes.20
  • As a new oil-producing country, Ghana has put in place a legal framework governing the collection, allocation, and management of petroleum revenue, with 70 percent of resource revenues allocated to the budget and the rest split between a stabilization fund and a heritage fund. Revenues are calculated based on a five-year moving average of oil prices and any revenues in excess of the budgeted amount are placed in the stabilization and heritage funds.

Other countries do not employ formal budgetary rules but take account of stabilization and long-term savings/investment concerns in a variety of other ways:

  • In the context of a Stand-By Arrangement (SBA) with the IMF since 2009, Angola’s budgets have been built on consciously conservative assumptions about world oil prices, with a view to building a strong foreign reserve buffer to help maintain macroeconomic stability in the face of oil revenue volatility.
  • Chad accumulated significant savings from oil revenues during the period of high prices (and high domestic output levels), which then provided the resources to maintain spending levels when resource revenues collapsed in 2009 (savings levels, however, have not been rebuilt since oil prices rebounded). Equatorial Guinea followed a similar saving-spending pattern, but still retains sizeable assets offshore.
  • In several cases, resource revenue is used in a selective way to support capital expenditure. Thus, Guinea has set up a dedicated account in the budget for this purpose (called the Special Investment Fund). Angola has earmarked a fraction of oil revenue for a special fund designed to prevent interruptions in selected investment projects during oil price busts.

While nominal exchange rate regimes vary across the fiscally dependent resource exporters, they are all characterized by limited flexibility. Five of the 10 countries in the group under consideration (Cameroon, Chad, Equatorial Guinea, Gabon, and the Republic of Congo) belong to a monetary union, the Central African Economic and Monetary Community (CEMAC), whose currency is pegged to the euro. Botswana operates a crawling peg exchange rate arrangement, linked to a basket of currencies; Angola, the Democratic Republic of the Congo, Guinea, and Nigeria manage their exchange rates with varying degrees of tightness. The Banque des Etats de l’Afrique Centrale (BEAC), CEMAC’s regional central bank, establishes international reserves policy for the region as a whole; Botswana maintains a minimum of six months of liquid reserves (outside the Pula Fund); and the other countries in the group are currently attempting to strengthen their reserves by taking advantage of favorable commodity prices.

MANAGING REVENUE VOLATILITY: THE END OF BOOM-BUST CYCLES?

The volatility of resource revenues often contributed to substantial macroeconomic instability in sub-Saharan Africa’s resource exporters: governments responded to surging resource revenues by ramping up spending levels, providing a sharp stimulus to economic activity that was then forced to a halt when budget revenues dropped sharply on the down-side of the commodity price cycle, creating significant disruptions of economic activity. At the root of this boom-bust cycle—an important feature of the “resource curse”—was the tendency to quickly spend new revenues in the boom period, often supplemented by funds borrowed on the strength of expected future resource revenues.

Reviewing the fiscal management track record for the region’s resource exporters since 2000 offers a more encouraging story: in many fiscally dependent countries, the link between surging resource revenue and spending levels has weakened significantly, contributing to a more stable macroeconomic environment. Nigeria’s experience is illuminating: the build-up of savings in the Excess Crude Account (with a corresponding accumulation of foreign reserves) in the period of surging oil prices through-mid-2008 provided a sufficient buffer to allow the non-oil economy to escape virtually unscathed when oil revenues collapsed in 2009.21

The relevant country experiences are summarized in Figure 3.13, with two distinct narratives emerging:22

  • For Botswana, Cameroon, and Nigeria (right panel), the data show no systematic links between the evolution of resource revenues and nonresource fiscal deficits (excluding grants). Rising resource revenues in the period through 2006 was accompanied by fiscal consolidation, rather than stimulus; as resource revenues declined from 2008 levels, the nonresource fiscal deficit rose substantially, made possible by the prior build-up of fiscal buffers.
  • For Angola, Republic of Congo, and Gabon (left panel), movements in resource revenues often led to changes in spending (and the non-oil deficit)—but the pass-through was typically less than complete, with fluctuations in the nonresource balance showing less amplitude than the corresponding fluctuations in resource revenues.

Figure 3.13.Sub-Saharan Africa Fiscally Dependent Countries: Resource Revenue and Nonresource Fiscal Deficit

(Percent of nonresource GDP)

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Effective management of resource revenue volatility could be improved in many countries by adopting stronger fiscal frameworks. Well-specified fiscal principles and rules can help insulate fiscal policy-making from populist pressures to spend available resources. Nigeria’s Excess Crude Account mechanism, though flawed and politically vulnerable, undoubtedly contributed to better policy outcomes as oil revenues rose during 2004–08; other countries would benefit from the adoption of fiscal rules or principles, customized to accommodate country-specific features, to guide policy over the commodity price cycle.23

FOREIGN RESERVE TARGETS FOR RESOURCE EXPORTERS IN SUB-SAHARAN AFRICA

Export revenues from natural resources can be highly volatile, suggesting that these exporters should hold above-average levels of international reserves. Higher reserve levels provide policymakers with space to cushion the impact of external shocks on the domestic economy, but they also come at a cost in terms of foregoing the higher rates of return that could be obtained via additional domestic fixed investment (or repayment of nonconcessional debt).

This section uses a recently developed methodology to calculate an appropriate level of foreign reserves for selected resource-exporting low-income countries in sub-Saharan Africa (Box 3.4). The approach balances the risk-reducing effects of reserves against their carrying cost, leaving other motives for accumulating reserves out of the calculus.

The statistical analysis suggests that the adverse domestic impact of external shocks is larger in resource exporters than elsewhere, and it confirms the effectiveness of reserves in preventing and mitigating the domestic effects of external shocks. The analysis also confirms that the appropriate level of foreign reserves depends on a country’s exchange rate regime: countries preferring pegged or tightly controlled exchange rates should target substantially higher reserve levels than those willing to let the exchange rate act as a shock absorber (for example, Zambia).

The estimated results for individual countries suggest that current reserve levels are generally too low in the region, although the findings for each country are sensitive to assumptions about the cost of holding reserves (Table 3.2). These results are intended to be illustrative rather than to provide firm policy prescriptions. As the methodology focuses exclusively on the precautionary motive for holding reserves, countries that include savings held for future use as part of foreign reserves should be targeting higher reserves levels than suggested here.24 Also, the approach does not distinguish between different types of resource exporter: countries heavily dependent on specific commodities (for example, oil) would need to factor in the special features of that commodity (such as price and domestic supply volatilities) in estimating the level of reserves needed to provide an adequate shock-absorber.

Table 3.2.Sub-Saharan Africa: Optimal Level of Reserves in a Sample of Resource-Intensive Countries(Months of imports, except where noted)
Actual

Reserves

(months of

imports)
Probability

of a drop in

domestic

demand1
Real domestic

demand loss2

(percent of

GDP)
Optimal level of

reserves based

on cost of

holding reserves
One month

imports in

percent of

GDP
2%4%
Angola7.60.15.86.43.33.6
Congo, Dem. Rep. of1.50.38.74.72.26.2
Ghana3.40.18.64.32.04.4
Guinea4.40.38.210.06.33.3
Nigeria4.80.28.59.85.82.9
Sierra Leone2.40.29.43.81.76.7
Tanzania4.70.16.95.72.93.6
Zambia3.90.29.09.65.63.3
Zimbabwe0.30.410.86.12.86.4
CEMAC5.00.117.610.09.03.4
Source: IMF staff calculations.

Probabiliy estimated at the actual level of reserves.

Domestic demand loss estimated at the actual levels of reserves.

Source: IMF staff calculations.

Probabiliy estimated at the actual level of reserves.

Domestic demand loss estimated at the actual levels of reserves.

FISCAL SUSTAINABILITY AND RESOURCE REVENUES

There is extensive debate over the pace at which low-income countries should spend the revenues generated by nonrenewable natural resources. There is a case for saving some of these revenues to benefit future generations who will not have the use of these depleted reserves. But there are also those who argue that future generations will almost certainly be much better off than the current one, and will thus have less need for natural resource proceeds. In addition to determining an appropriate level of savings, there is then the question as to how these savings should be invested—in financial assets held abroad, or in building domestic capital (physical or human). Many have argued that the severe infrastructure gaps in most of the region’s economies, along with the low levels of physical and human capital, provide a strong case for using resource revenues to fund domestic investments (Collier and others, 2010). Others have cautioned that the scaling up of domestic investment must also consider domestic absorption capacity, and that any scaling up requires strengthening of public-investment-management capacity to ensure investments yield good returns (Gupta and others, 2011).

We examine two distinct concepts of a sustainable fiscal position: (i) a path for the nonresource deficit that is fully financed with a constant annual flow of real revenues from resource wealth over an extended period (specifically, 30 years); and (ii) a path for the nonresource deficit fully financed with an annual flow of revenues from resource wealth that is a constant share of nonresource GDP. Sustainability here means spreading the entire proceeds of resource wealth “evenly,” in some form or other, over a 30-year period.

This analysis is modest in scope, focusing on whether the current fiscal position—specifically, the current level of the nonresource deficit—can be sustained over the medium to long term. It does not consider whether the current level or mix of spending is appropriate, but rather the technical question as to whether it can be sustained for an extended period. This analysis seeks to specify the sustainable level of the nonresource deficit, and then to compare that to current deficit levels.

The key measure that anchors this exercise is the estimated resource wealth—defined to be the present value of the revenues that the government can expect to obtain, over the specified time period, from the currently identified stock of resources. To the extent that one can confidently expect the discovery of new resources in the years ahead, this measure understates the amount of resource wealth and, by extension, the levels of the nonresource deficit necessary for fiscal sustainability.

Using estimates of known resource endowments, Figure 3.14 shows the sustainable paths for the nonresource deficits of selected resource-rich sub-Saharan African economies, as well as the estimated/ projected levels of the nonresource deficits during 2009–12.25 The sustainable path associated with a constant annual flow of real revenues from resource wealth declines steadily over time as a share of nonresource GDP, given the steady increase of the latter over time. The sustainable path associated with a constant nonresource deficit to nonresource GDP level over time is, by definition, a flat line.

Figure 3.14.Selected Countries: Fiscal Benchmarks Using Spring 2012 World Economic Outlook Resource Price Projections

(Percent of nonresource GDP)

Sources: IMF, World Economic Outlook database; and IMF staff calculations.

Box 3.4.Estimating Reserve Adequacy in Resource-Exporting Low-Income Countries

IMF (2011a) and Dabla-Norris, Kim, and Shirono (2011) develop a methodology for assessing reserve adequacy in low-income countries (LICs) that seeks to quantify the benefits of holding reserves for precautionary purposes. These analyses estimate both the likelihood and the scale of a drop in domestic demand in a country; compare the benefits of holding additional reserves in containing demand declines with the costs of holding additional reserves (the potential returns on foregone investment less the returns earned on liquid foreign assets); and then seek to identify the level of reserves that balances marginal benefits and costs. The statistical analysis is based on the experience of a sample of 49 low-income countries, of which 13 are resource exporters.

This methodology is extended here, using the same data set, to distinguish between resource exporters and other low-income countries. The results suggest that the probability that resource exporters face a demand drop is not different from that of the rest of the sample, but that domestic demand drops tend to be more pronounced in resource exporters (see table below).

Figure 1.Low-Income Countries: Estimations of the Likelihood and Severity of a Drop in Domestic Demand

Source: IMF, staff calculations.

Note: T-statistics reported in parenthesis.

The regression coefficients are used to estimate the “optimal” level of reserves in selected low-income countries in sub-Saharan Africa under various assumptions, with some summary results shown in Table 3.2. Calculations are made at the level of the union for the CEMAC countries.

This box was prepared by Javier Arze del Granado and Darlena Tartari.
  • Except for Angola, the current levels of the nonresource fiscal deficit exceed the level consistent with ensuring an annual revenue flow from resource wealth at a constant share of nonresource GDP. Measured by this criterion, the use of resource revenues is currently significantly front-loaded; nonresource deficits need to be reduced from current elevated levels via fiscal adjustment measures. This “overspending” from the stock of mineral wealth is highest in Equatorial Guinea and lowest in the Demorcratic Republic of the Congo.
  • The situation is quite different if the objective is to ensure the budget receives a constant level of resource revenues each year in real terms. Nonresource deficit levels in Angola, Chad, and the Republic of Congo lie at or below the trajectory for a deficit consistent with achieving this objective, although gradual fiscal adjustment will be required over time to remain aligned with the target trajectory. Nonresource deficit levels in the other five countries lie above the target path; the use of resource revenues is still front-loaded relative to the target, and fiscal adjustment measures are needed both to reach the sustainable trajectory and maintain it.

The conclusion from these calculations is that observed nonresource deficits are, in most cases, higher than can be sustained over the next 30 years, given the existing stock of resource wealth. Of course, existing budget deficits could be justified by reference to temporarily high levels of investment expected to contribute to stronger growth over the medium term. Moreover, there may be excellent prospects for the discovery of new natural resources that would significantly increase the value of resource wealth, supporting higher sustainable deficit levels than estimated here—although prudential considerations suggest that policies should be framed on the basis of identified resource stocks rather than on hopes of future discoveries that may not materialize. The fact that observed nonresource deficits cannot be sustained over the medium term indicates that budgetary policy warrants careful review. Absent firm indications that new commercially viable projects will be coming on stream and that budgetary investment is yielding high returns, fiscal adjustment will be needed over the medium term to avoid debt accumulation. This implies that attention should be given now to boosting nonresource revenues and reforming expenditure policies (measures that will take time to yield results).26

CONCLUSIONS

This chapter has provided an overview of the experience of nonrenewable resource exporters in sub-Saharan Africa since 2000. Key conclusions include:

  • Helped by favorable commodity-price developments and new resource discoveries, resource exporters achieved higher per capita GDP growth over the period than was recorded in other countries in the region—although the pace of improvement on social indicators may be slower than appears warranted by these growth rates.
  • Macroeconomic volatility remains a significant factor in fiscally dependent resource exporters—that is, countries where resource revenues contribute significantly to budget revenues. There is still, in several countries, a propensity to pass resource revenue surges quickly into higher spending levels, but the scale of the pass-through appears to be relatively modest in most cases, and a far cry from the strongly procyclical fiscal policies of the past, which both wasted resources and created significant disruption.
  • By and large, sub-Saharan Africa’s resource exporters are aware of the need to transparently manage natural resource revenue, and a majority of them have chosen to participate in the EITI. This is an area where sustained effort is essential to ensure resources are not a “curse.”

Macroeconomic policy has been covered only lightly, but some policy implications emerge from this analysis:

  • Developing macroeconomic policy frameworks that effectively handle the volatility of resource revenues is an important task for several countries. Stronger frameworks and rules, well integrated with the budget process, could provide better outcomes, in terms of maintaining macroeconomic stability, than discretionary (and somewhat ad hoc) policy formulation.
  • Building adequate reserve buffers is an important component of a framework for handling the volatility of international commodity markets. While determining adequate reserve levels is a country-specific exercise, it appears that a number of resource exporters still need to continue rebuilding reserves after the 2009 shock.
  • Fiscal sustainability has a special dimension in producers/exporters of nonrenewable natural resources, as these endowments and their associated revenue flows will be exhausted over time unless new resource discoveries offset this depletion. While many of the region’s countries are benefiting from ongoing expansion of their identified resource base, sustainability issues warrant attention in policy formulation.
This chapter was prepared by Javier Arze del Granado, Montfort Mlachila, Jean-Claude Nachega, Jon Shields, Darlena Tartari, Alun Thomas, and Juan Treviño, with inputs from Shawn Ladd and Geoffrey Oestreicher. Research assistance was provided by Sandra Donnally, Cleary Haines, and Luiz Oliveira, and administrative assistance by Natasha Minges.
1For simplicity, “natural resources” is used throughout this chapter to refer to nonrenewable natural resources.
2There is a large body of research and policy analysis that addresses these issues; see Collier et al. (2010) for an extensive set of references to this literature.
3See Box 3.1. South Sudan has not been included in the analysis.
4This share could change markedly over time as resource projects mature.
5See the footnotes to Table 3.1 for information sources and assumptions made in these calculations.
6State participation in production varies significantly across countries, but is typically well below 50 percent (Table 3.1); an important exception is Botswana, where the government holds a 50 percent share in Debswana, the national diamond producer.
7Sachs and Warner (1997, 1999, 2001), among others, raised concerns about the existence of a negative relationship between resource abundance and economic growth; more recent studies suggest that resource abundance increases growth (e.g., van der Ploeg, 2011; Cavalcanti, Mohades, and Raissi, 2009).
8The resource price is deflated by the CPI index of countries making up the SDR basket. Both the resource prices and real exchange rates are weighted by the sum of exports and imports to create group aggregates.
9For the gold exporters, the behavior of the real exchange rate is the combination of two distinct profiles, with the real exchange rate in Mali and Ghana having appreciated by about 10 percent and the real exchange rate in Tanzania having depreciated.
10Non-SSA resource intensive countries include Azerbaijan, Bahrain, Bolivia, Brunei Darusalem, Chile, Ecuador, Indonesia, Kazakhstan, Mongolia, Norway, Oman, Qatar, Russian Federation, Saudi Arabia, Sudan, Suriname, Syrian Arab Republic, Trinidad and Tobago, Turkmenistan, Venezuela, and Republic of Yemen.
11Examples of the region’s countries deemed by researchers to have suffered from the “resource curse” include Angola, Nigeria, the Democratic Republic of the Congo, and Sierra Leone; Botswana is often cited as an example of a country that has benefited enormously from its mineral endowment.
12An illustrative example is Nigeria, where per-capita GDP grew by some 40 percent between 1993 and 2004, yet the poverty headcount ratio at $1.25 a day (PPP) rose from 49.2 percent to 64.4 percent in this period.
13Significant disparities between GDP and GNI can occur for a variety of reasons unrelated to resources: e.g., a large stock of public foreign debt or a large stock of foreign assets owned by nationals.
14The human development index is a composite index measuring average achievement in three basic dimensions of human development—a long and healthy life, knowledge, and a decent standard of living.
15Even individual country comparisons require careful analysis: the poor performance of Angola compared to Ghana on the HDI score, despite a large income advantage, could be seen as the legacy of decades of civil war.
16See, for example, Alesina et al. (1992), Mauro (1996), and Barro (1997). Studies that discuss the experience of Africa include Goldsmith (1998), Nkurunziza and Bates (2003), and Iimi (2006).
17Data are taken from the World Bank’s Worldwide Governance Indicators; see Kaufmann, Kraay, and Mastruzzi (2010) for details.
18The fiscal “protection” provided by this mechanism can be quite limited; given high price volatility, price assumptions viewed as cautiously conservative at the outset of the budget planning process can still prove to be overly optimistic, creating revenue shortfalls that—absent strong fiscal buffers—can create severe fiscal and macroeconomic stresses.
19See Baunsgaard et al. (2012) for a discussion of the relevant issues.
20As of now, a SWF is not yet operational and the ECA mechanism is still in effect.
21Angola’s experience over the same period was less benign: public spending (including quasi-fiscal operations) had reached very high levels by 2008, leaving the fiscal position exposed when oil revenues dropped sharply in 2009, which resulted in a run-down on reserves, large budgetary arrears, and financial stresses on both corporations and banks.
22Guinea and DRC had much lower revenues relative to other fiscally dependent economies so that fluctuations in resource revenue did not pose such a policy challenge. Chad and Equatorial Guinea were excluded from the analysis because of data limitations.
23Chile’s structural budget surplus rule is often cited as a model for other developing countries.
24Saving for future use could be held as part of foreign reserves but could also be held in special funds, such as a sovereign wealth fund.
25Key assumptions underpinning the analysis include: (i) trend growth in the nonresource economy at a rate of 4 percent per annum; (ii) full depletion of the existing stock of resources over the 30-year period; (iii) commodity price assumptions taken from the IMF’s World Economic Outlook (April 2012) through 2017 and constant in real terms thereafter; (iv) broadly unchanged budgetary revenue take from resource revenues; and (v) a discount rate of 4 percent in real terms.
26Independent of sustainability concerns, poor quality public investment would indicate the need for reforms that would improve project selection and execution processes.

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