Managing (Fiscally) Resource Price Volatility : Exploring Policy Options for the Democratic Republic of Congo / Emmanuel Pinto-Moreira.

Format:

Book

Government document

Author/Creator:

Pinto-Moreira, Emmanuel.

Contributor:

Pinto-Moreira, Emmanuel.

Series:

Policy research working papers.

World Bank e-Library.

Language:

English

Subjects (All):

Commodity Price Shock.

Dsge Model, Sovereign Wealth Fund.

Small Open Economy.

Local Subjects:

Commodity Price Shock.

Dsge Model, Sovereign Wealth Fund.

Small Open Economy.

Physical Description:

1 online resource (40 pages)

Other Title:

Managing

Place of Publication:

Washington, D.C. : The World Bank, 2016.

System Details:

data file

Summary:

How should resource-dependent countries respond (fiscally) to resource price volatility? This paper studies what determines revenue allocation between a "spend today" strategy and a "save now-spend tomorrow" approach in the context of the Democratic Republic of Congo (DRC). It uses a three-sector model in which public infrastructure investment has tangible benefits for private production and investment while it is also subject to absorption constraints. The paper calibrates the optimal allocation rule between spending today and asset accumulation, by minimizing a social loss function defined in terms of household welfare (measured by consumption volatility) and macroeconomic volatility (measured in terms of fiscal volatility). Sensitivity analysis is also conducted with respect to various key parameters, including the efficiency of public investment. The results indicate that, if properly managed, sovereign fund could contribute significantly to macroeconomic stability in the DRC.