Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Buoyant oil prices have allowed oil-producing countries in sub-Saharan Africa (SSA OPCs) to increase oil exports and fiscal revenues, providing them with resources necessary to address the pressing social needs. To preclude another boom-bust cycle, this paper advocates the definition of a fiscal benchmark anchored in sustainability grounds, following Leigh-Olters (2006). The difference between current primary deficits and those that could be maintained after oil reserves are exhausted represent an indication of the degree to which fiscal positions will have to be adjusted-either gradually, while the overall balances remain in surplus, or abruptly, once oil revenues begin to dwindle.

Resource curse: An analysis of causes, experiences and possible ways forward

“…However, while there are other measures such as poverty levels, the data on these alternatives are sparse and patchy making their use difficult.2 Variance across countries has been significant Olters (2007). raises the concern that Sub-Saharan African oil producers are particularly at risk to repeat the boom-bust cycles that inhibited progress in poverty reduction in previous decades.3 There is much overlap in the debate on institutions and governance.…”

Harnessing Windfall Revenues: Optimal Policies for Resource‐Rich Developing Economies

“…, 2010). Resource‐rich economies may also get addicted to high public spending and find it difficult to curb spending once resource revenues dry up (Leigh and Olters, 2006; Olters, 2007).…”

Official forecasts and management of oil windfalls

“…We empirically test the permanent income hypothesis (PIH) and the associated principles of tax and consumption smoothing (e.g., Barro, 1979;Deaton, 1992) 1 . We also allow for asset targets, habit persistence (Leigh and Olters, 2006;Olters, 2007) and relate our optimal rules to the pragmatic bird in hand (BIH) rule for the management of oil windfalls (e.g., Davis et al, 2002;Barnett and Ossowski, 2003;Medas and Zakharova, 2009). We also use official demographic forecasts to allow a graying population and rising pension burden.…”

“…The PIH with habit persistence implies that society gets hooked on high consumption during a windfall, but finds it tough to cut consumption afterwards (Leigh and Olters, 2006;Olters, 2007). This leads to an extra term Impatient and inconsistent politicians prefer spending hikes and tax cuts now rather than tomorrow and regret them when the time comes to cut the budget and raise taxes to repay accumulated debt plus interest.…”