This paper analyses a large public investment in a construction of a hydropower plant in Lesotho and its implications on the growth and debt sustainability. The paper employs an open economy dynamic general equilibrium model to assess the benefits of a large public investment through growth-enhancing increase in domestic energy supply and receipts from selling electricity abroad to ease the fiscal burden, which is often associated with big investment projects. During the transition (construction stage), various financing options are explored: increase in the public debt, increase in domestic revenue (fiscal adjustment), and combination. The calibration matches Lesotho's data and it captures the project's main challenges regarding the project costs. Moreover,the key remaining issue is the agreement with South Africa to purchase sufficient amount of electricity to allow the potential plant to run at a high capacity. We find that, the project can lead to sizable macroeconomic benefits as long as costs are relatively low and demand from South Africa is sufficiently high. However, the risks for the viability of the project are high, if these assumptions are violated.
Ms. Kalpana Kochhar, Ms. Catherine A Pattillo, Ms. Yan M Sun, Mrs. Nujin Suphaphiphat, Mr. Andrew J Swiston, Mr. Robert Tchaidze, Mr. Benedict J. Clements, Ms. Stefania Fabrizio, Valentina Flamini, Ms. Laure Redifer, and Mr. Harald Finger
This paper examines water challenges, a growing global concern with adverse economic and social consequences, and discusses economic policy instruments. Water subsidies provided through public utilities are estimated at about $456 billion or 0.6 percent of global GDP in 2012. The paper suggests that getting economic incentives right, notably by reforming water pricing, can go a long way towards encouraging more efficient water use and supporting needed investment, while enabling policies that protect the poor. It also discusses pricing reform options and emphasizes an integrated and holistic approach to manage water, going beyond the water sector itself. The IMF can play a helpful role in ensuring that macroeconomic policies are conducive to sound water management.
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International Monetary Fund. Asia and Pacific Dept
The Sixth Five Year Plan, as outlined in Bangladesh's Poverty Reduction Strategy Paper, targets strategic growth and employment. The medium-term macroeconomic framework plan entails the involvement of both the private and public sectors. Human resources development strategy programs reaching out to the poor and the vulnerable population, as well as environment, climate change, and disaster risk management, have been included in the plan. Managing regional disparities for shared growth and strategy for raising farm productivity and agricultural growth have been outlined. Diversifying exports and developing a dynamic manufacturing sector are all inclusive in the proposed plan.
Nepal is a post-conflict state seeking to formalize democracy in a challenging environment. Significant headway toward a new state has been made since the 2006 peace accord. Progress on a range of technical issues (including public financial management, monetary policy, and financial sector supervision) has also been achieved. However, the failure of the constituent assembly to meet an end-May 2012 deadline to ratify a new constitution is a serious setback, and a major impediment to macroeconomic management and prospects for growth. The subsequent dismissal of the constituent assembly in June 2012 has left day-to-day operations in the hands of a caretaker government. New elections are notionally slated for April 2013, but will require fractured political parties to agree on an interim consensus government. In the meantime, key articles of legislation (such as the government budget) have been delayed. More broadly, the lack of a consensus government and functioning parliament appear to be dampening investment (foreign and domestic), keeping potential donor support at bay, and undermining prospects for sensitive financial sector and state enterprise reforms.