Harnessing Resource Wealth for Inclusive Growth in Fragile States

Author/Editor:

Corinne C Delechat ; John W Clark JR ; Pranav Gupta ; Malangu Kabedi-Mbuyi ; Mesmin Koulet-Vickot ; Carla Macario ; Toomas Orav ; Manuel Rosales Torres ; Rene Tapsoba ; Dmitry Zhdankin ; Susan Yang

Publication Date:

February 11, 2015

Electronic Access:

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Disclaimer: 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

Summary:

Like other fragile sub-Saharan African countries, Côte d’Ivoire, Guinea, Liberia, and Sierra Leone are seeking to harness their natural resource potential in the context of ambitious development strategies. This study investigates options for scaling up public investment and expanding social safety nets in a general equilibrium setting. First, it assesses the macro-fiscal implications of alternative fiscal rules for public investment, and, second, it explicitly accounts for redistribution through direct cash transfers. Results show that a sustainable non-resource deficit target is robust to the high uncertainty of resources output and prices, while delivering growth benefits through higher public investment. The scaling-up magnitudes, however, depend on the size of projected resource revenue and absorptive capacity. Adding a social transfer raises private consumption, suggesting that a fraction of the resource revenue could be used to expand safety nets.