Investing in Electricity, Growth, and Debt Sustainability: The Case of Lesotho

Andreolli, Michele; Abdychev, Aidar

doi:10.5089/9781484385739.001

Cited by 4 publications

(5 citation statements)

References 1 publication

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“…Although the fiscal deficit could widen by 1 percent of GDP in the short term, the investment program could also deliver fiscal gains of about 4 percent of GDP in the medium term. Model simulations for Lesotho also showed that increases in domestic energy supply could be growth-enhancing, while receipts from selling electricity abroad could ease the fiscal burden (tax increases), which is often associated with big public projects (Andreolli and Abdychev, 2016). Yet, in the transition, debt as well as taxes could rise substantially to pay for this public investment surge.…”

Section: Extensions and Alternative Usesmentioning

confidence: 98%

“…The DIG and DIGNAR models were originally developed to address questions on the effects of public investment increases on growth and debt sustainability, but they were extended to other dimensions. The DIG model was extended to explicitly account for the energy sector in the analysis of ambitious energy investment plans in Ethiopia, Senegal, and Lesotho (Issoufou et al, 2014 andAndreolli andAbdychev, 2016). Further extensions were geared to the analysis of costs of operations and maintenance (Adam and Bevan, 2014); building climate resilient infrastructure ; the trade-offs between investing on economic and social infrastructure (Atolia et.…”

Section: Introductionmentioning

confidence: 99%

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Some Policy Lessons from Country Applications of the DIG and DIGNAR Models

Zanna¹,

Melina²,

Gurara³

2019

IMF Working Papers

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Over the past seven years, the DIG and DIGNAR models have complemented the IMF and World Bank debt sustainability framework (DSF) analysis, over 65 country applications. They have provided useful insights in the context of program and surveillance work, based on qualitative and quantitative analysis of the macroeconomic effects of public investment scaling-ups. This paper takes stock of the model applications and extensions, and extract five common policy lessons from the universe of country cases. First, improving public investment efficiency and/or raising the rate of return of public projects raises growth and lowers the risks associated with debt sustainability. Second, prudent and gradual investment scaling-ups are preferable to aggressive front-loaded ones, in terms of private sector crowding-out effects, absorptive capacity constraints, and debt sustainability risks. Third, domestic revenue mobilization helps create fiscal space for investment scaling-ups, by effectively containing public debt surges and their lateron repayments. Fourth, aid smoothens fiscal adjustments associated with public investment increases and may lower the risks of unsustainable debt. Fifth, external savings mitigate Dutch disease macroeconomic effects and serve as fiscal buffers. The paper also discusses how these models were used to estimate the quantitative macro economic effects associated with these lessons.

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Section: Extensions and Alternative Usesmentioning

confidence: 98%

Section: Introductionmentioning

confidence: 99%

Some Policy Lessons from Country Applications of the DIG and DIGNAR Models

Zanna¹,

Melina²,

Gurara³

2019

IMF Working Papers

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“…7 They utilize an extended framework to examine debt sustainability and the macroeconomic implications of public investment strategies in commodity-exporting and small open economies. Expanding into a particular sector, the model was extended by Andreolli and Abdychev [49]. They apply an energy-incorporated model to evaluate the macroeconomic outcomes of energy projects in a small open economy.…”

Section: Javkhlan Ganbayarmentioning

confidence: 99%

Effects of Expansionary Fiscal Policy in a Commodity-Exporting Economy: Evidence from Mongolia

Ganbayar

2023

Bulletin of Applied Economics

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This study contributes to the ongoing debate on the consequences of expansionary fiscal policy by evaluating the macroeconomic effects of various fiscal policy options in a small open economy using a dynamic stochastic general equilibrium (DSGE) model. In addition, the study emphasizes the importance of studying Mongolia, which has unique characteristics and exhibits significant research gaps regarding its fiscal policy. The general architecture of the selected DSGE model includes different types of firms and households, commodity sectors, natural resource funds, and abundant fiscal tools regarding both expenditure and revenue. Employing numerous types of fiscal policy shocks, this study reveals that an exogenous increase in government investment yields the most significant long-term economic benefits, boosting potential output by 0.3%. Among the policy options, government transfers are the least effective in promoting economic output, and existing transfer policies in Mongolia appear to exert only a modest impact on growth, instead primarily contributing to the redistribution of resources. Finally, the estimated output multipliers (except transfers) are greater than one, implying that fiscal policy instruments may be an effective tool for managing the economy in Mongolia. JEL classification numbers: E17, E62, H24, H54, H55. Keywords: Fiscal policy, Fiscal policy multiplier, Small open economy, Dynamic Stochastic General Equilibrium model, Natural Resource Sector.

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“…Moreover, as our experiments (described in following sections) involve at least a one-time permanent change in policy, the economy converges to a di erent steady state than the initial one. 8 4 Roads or Schools: Implications for Growth and…”

Section: Sensitivity Analysis Is Done For a Range Of Tax Reactivitymentioning

confidence: 99%

“…See IMF (2016b) for the analysis of the Maldives' currently undergoing investment of 35%-38% of GDP to upgrade its tourism infrastructure over a period of 4 year from 2016 onwards. Andreolli and Abdychev (2016) analyze debt sustainability implication of Lesotho's construction of an hydropower plant with total investment of about 31% of GDP over a period of 7 years. In the context of big-push scenarios, Ghazanchyan et al (2016) study how improving the e ciencies of capital spending and of tax revenue collection a ect growth and debt sustainability in Cambodia, Sri Lanka, and Vietnam.…”

Section: A Permanent Scale-up With a "Big Push"mentioning

confidence: 99%

Investing in Public Infrastructure: Roads or Schools?

Atolia

Li²,

Marto³

et al. 2017

IMF Working Papers

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Why do governments in developing economies invest in roads and not enough in schools? In the presence of distortionary taxation and debt aversion, the different pace at which roads and schools contribute to economic growth turns out to be central to this decision. Specifically, while costs are front-loaded for both types of investment, the growth benefits of schools accrue with a delay. To put things in perspective, with a "big push," even assuming a large (15 percent) return differential in favor of schools, the government would still limit the fraction of the investment scale-up going to schools to about a half. Besides debt aversion, political myopia also turns out to be a crucial determinant of public investment composition. A "big push," by accelerating growth outcomes, mitigates myopia-but at the expense of greater risks to fiscal and debt sustainability. Tied concessional financing and grants can potentially mitigate the adverse effects of both debt aversion and political myopia.

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Investing in Electricity, Growth, and Debt Sustainability: The Case of Lesotho

Cited by 4 publications

References 1 publication

Some Policy Lessons from Country Applications of the DIG and DIGNAR Models

Some Policy Lessons from Country Applications of the DIG and DIGNAR Models

Effects of Expansionary Fiscal Policy in a Commodity-Exporting Economy: Evidence from Mongolia

Investing in Public Infrastructure: Roads or Schools?

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