Growth trends in most of sub-Saharan Africa remain strong. The region’s economy is expected to continue growing at a fast clip, expanding by about 5 percent in 2014 and 5¾ percent in 2015. But this broad picture is underpinned by three distinct storylines.
Fragile states—states in which the government is unable to reliably deliver basic public services to the population—face severe and entrenched obstacles to economic and human development. While definitions of fragility and country circumstances differ, fragile states generally have a combination of weak and noninclusive institutions, poor governance, and constraints in pursuing a common national interest. As a result, these states typically display an elevated risk of both political instability (including civil conflict), and economic instability (through a low level of public service provision, inadequate economic management, and difficulties to absorb or respond to shocks). In addition, crises in such states can have significant adverse spillovers on neighboring countries. At the other end of the spectrum, resilience can be defined as a condition where enough institutional strength, capacity, and social cohesion enable the state to promote security and development and to respond effectively to shocks.
Public sector balance sheets (PSBSs) provide the most comprehensive view of public wealth, yet they are little understood, poorly measured, and only partly managed. Standard fiscal analysis focuses on flows—revenues, expenditures, and deficits—with assessments of stocks largely limited to gross debt. The focus on debt misses large swaths of government activity and can fall victim to illusory fiscal practices.
Exporters of nonrenewable commodities such as oil, gas, and metals are a key part of the global economy (Figure 1.1).1 They are a mix of high-, middle-, and low-income countries that represent close to 20 percent of world GDP and global exports, and are an important destination for foreign direct investment (FDI). They hold a large share of the world’s natural resources, accounting for almost 90 percent of crude oil reserves and 75 percent of copper reserves.
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.
Public sector balance sheets provide the most comprehensive picture of public wealth. They bring together all the accumulated assets and liabilities that the government controls, including public corporations, natural resources, and pension liabilities. They thus account for the entirety of what the state owns and owes, offering a broader fiscal picture beyond debt and deficits. Most governments do not provide such transparency, thereby avoiding the additional scrutiny it brings. Better balance sheet management enables countries to increase revenues, reduce risks, and improve fiscal policymaking. There is some empirical evidence that financial markets are increasingly paying attention to the entire government balance sheet and that strong balance sheets enhance economic resilience. This issue of the Fiscal Monitor presents a new database that shows comprehensive estimates of public sector assets and liabilities for a broad sample of 31 countries, covering 61 percent of the global economy, and provides tools to analyze and manage public wealth. Estimates of public wealth reveal the full scale of public assets and liabilities. Assets are worth US$101 trillion or 219 percent of GDP in the sample. This includes 120 percent of GDP in public corporation assets. Also included are natural resources that average 110 percent of GDP among the large natural-resource-producing countries. Recognizing these assets does not negate the vulnerabilities associated with the standard measure of general government public debt, comprising 94 percent of GDP for these countries. This is only half of total public sector liabilities of 198 percent of GDP, which also includes 46 percent of GDP in already accrued pension liabilities. Once governments understand the size and nature of public assets, they can start managing them more effectively. Potential gains from better asset management are considerable. Revenue gains from nonfinancial public corporations and government financial assets alone could be as high as 3 percent of GDP a year, equivalent to annual corporate tax collections across advanced economies. In addition, considerable gains could be realized from government nonfinancial assets. Public assets are a significant resource, and how governments use and report on them matters, not just for financial reasons, but also in terms of improving service delivery and preventing the misuse of resources that often results from a lack of transparency.
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues explores ways for strengthening the current fiscal framework in Suriname and considers options for a new fiscal anchor. The paper provides an overview of mineral natural resources and their importance for the budget. It also lays out the current framework for fiscal planning and budget execution in Suriname and discusses the analytical underpinnings of modernizing it to make it more robust. The paper also presents estimates of long-term sustainability benchmarks based on the IMF’s policy toolkit for resource-rich developing countries. Suriname’s fiscal framework can be strengthened through a fiscal anchor rooted in the non-resource primary balance. Given the size of fiscal adjustment required to bring the non-resource primary balance in line with the long-term sustainability benchmark, a substantial transition period is needed to implement it. The IMF Staff’s adjustment scenario—designed to put public debt on the downward path—closes the current gap by less than half, implying that adjustment would need to continue beyond the 5-year horizon.
Some resource-rich developing countries are in the process of harnessing immense mining resources towards inclusive growth and prosperity. Nevertheless, tapping into natural resources could be challenging given the large front-loaded investment, volatile capital flows and exposure to global commodity markets. Public investment is needed to remove the often-large infrastructure gap and unlock the economic potential. However, too rapid fiscal outlays could push the economy to its limit of absorptive capacity and increase macro-financial vulnerabilities. This paper utilizes a structural model-based approach to analyze macroeconomic impacts of different public investment strategies on key fiscal and non-fiscal variables such as debt, consumption, sovereign wealth fund, and real exchange rates. We apply the model to Mongolia and draw policy recommendations from the analysis. We find that fiscal policy adjustment, particularly moderating infrastructure investment and optimizing investment efficiency is needed to maintain macroeconomic and external stability, as well as to boost the long-term sustainable growth for Mongolia.
Growth in much of Sub-Saharan Africa is expected to remain strong, driven by efforts to invest in infrastructure and strong agricultural production. The current Ebola outbreak in Guinea, Liberia, and Sierra Leone is exacting a heavy toll, with spillovers to neighboring countries. External threats to the region's overall positive outlook include global financial conditions and a slowdown in emerging market growth.