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Natural Gas, Public Investment and Debt Sustainability in Mozambique

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  • Mr. Giovanni Melina
  • Yi Xiong

Abstract

Mozambique has great potential in natural gas reserves and if liquefied/commercialized the sum of taxes and other fiscal revenue from natural gas will, at its peak, reach roughly one third of total fiscal revenue. Recent developments in the natural resource sector have triggered a fresh round of much needed infrastructure investment. This paper uses the DIGNAR model to simulate alternative public investment scaling-up plans in alternative LNG market scenarios. Results show that while a conservative approach, which simply awaits LNG revenues, would miss significant current growth opportunities, an aggressive approach would likely meet absorptive capacity constraints and imply a much bigger (and, in an adverse scenario, unsustainable) build-up of public debt. A gradual scaling up approach represents indeed a desirable path, as it allows anticipating some, though not all, of the LNG revenue and, even in an adverse scenario, keeping public debt at sustainable levels. Structural reforms affecting selection, governance and execution of public investment projects would significantly enhance the extent to which public capital is accumulated and impact non-resource growth and, ultimately, debt sustainability.

Suggested Citation

  • Mr. Giovanni Melina & Yi Xiong, 2013. "Natural Gas, Public Investment and Debt Sustainability in Mozambique," IMF Working Papers 2013/261, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/261
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    References listed on IDEAS

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    Cited by:

    1. Suescun, Rodrigo, 2020. "A tool for fiscal policy planning in a medium-term fiscal framework: The FMM-MTFF model," Economic Modelling, Elsevier, vol. 88(C), pages 431-446.
    2. Melina, Giovanni & Yang, Shu-Chun S. & Zanna, Luis-Felipe, 2016. "Debt sustainability, public investment, and natural resources in developing countries: The DIGNAR model," Economic Modelling, Elsevier, vol. 52(PB), pages 630-649.
    3. Alex Armand & Alexander Coutts & Pedro C. Vicente & Inês Vilela, 2020. "Does Information Break the Political Resource Curse? Experimental Evidence from Mozambique," American Economic Review, American Economic Association, vol. 110(11), pages 3431-3453, November.
    4. World Bank Group, 2016. "Kenya Country Economic Memorandum," World Bank Publications - Reports 24008, The World Bank Group.
    5. Perrotton, Florian & Massol, Olivier, 2020. "Rate-of-return regulation to unlock natural gas pipeline deployment: Insights from a Mozambican project," Energy Economics, Elsevier, vol. 85(C).
    6. Ms. Corinne C Delechat & Mr. John W Clark JR & Pranav Gupta & Ms. Malangu Kabedi-Mbuyi & Mr. Mesmin Koulet-Vickot & Ms. Carla Macario & Mr. Toomas Orav & Mr. Manuel Rosales Torres & Rene Tapsoba & Dmi, 2015. "Harnessing Resource Wealth for Inclusive Growth in Fragile States," IMF Working Papers 2015/025, International Monetary Fund.
    7. Amir Sadeghi, 2018. "How Public Investment Could Help Strengthen Iran’s Growth Potential: Issues and Options," IMF Working Papers 2018/129, International Monetary Fund.
    8. Mihalyi, David, 2020. "The Long Road to First Oil," MPRA Paper 103725, University Library of Munich, Germany.

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