Davis,Jeffrey, R. Ossowski, J. Daniel, and S. Barnett, 2001, “Stabilization and Savings Funds for Nonrenewable Resources. Experience and Fiscal Policy Implications,” IMF Occasional Paper 205.
Prepared by Vincent Moissinac and Vitali Kramarenko.
In this chapter, oil wealth is defined to include oil and gas resources.
Engel and Valdes (2000) provide an overview of the application of the permanent oil income model to the analysis of fiscal sustainability.
From this perspective, the government’s wealth comprises the oil wealth, i.e the present value of all future government oil revenues, and the initial net stock of the government’s assets.
This principle is valid regardless of the presence of oil resources.
In the rest of the chapter, the non-oil current deficit refers to this definition of the non-oil current balance including depreciation costs and excluding net interest income.
The simple model used in this chapter accounts only for those subsidies that are driven by differences between domestic and export prices of crude oil and natural gas, which can be estimated at 7 percent of GDP in 2002/03. Under current policies, domestic prices of oil and gas would be increased every year by 10 percent in U.S. dollar terms. At this rate of increase, they will be in line with long-term export prices in 15 years.
Current gas prices are currently well below that level. It is assumed that they will converge to that level in the next 15 years.
In addition to consistency with various criteria for oil preservation, fiscal policy should also support short-run macroeconomic policies. The analysis of the latter is beyond the scope of this paper.
Since this chapter is primarily focused on long-term sustainability issues, the analysis of the current set-up and stabilizing role of the OSF is not presented and should be the subject of future research.