Natural Gas, Public Investment and Debt Sustainability in Mozambique

December 23, 2013

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Giovanni Melina, and Yi Xiong. Natural Gas, Public Investment and Debt Sustainability in Mozambique, (USA: International Monetary Fund, 2013) accessed December 3, 2024

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

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.

Subject: Economic sectors, Environment, Expenditure, Infrastructure, National accounts, Natural gas sector, Natural resources, Public debt, Public investment spending

Keywords: Africa, Debt sustainability, DIGNAR Author’s E-Mail, East Asia, Infrastructure, Investment project, Investment scaling-up, LNG production, LNG revenue, Mozambique, Natural gas sector, Natural resource, Natural resources, Public investment, Public investment spending, Scaling-up plan, South Asia, Sub-Saharan Africa, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/261
Stock No:

WPIEA2013261
ISBN:

9781484326404
ISSN:

1018-5941

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