Irene Yackovlev

Christine J. Richmond

Ms. Shu-Chun S. Yang

Natural resource revenues are an increasingly important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper applies to Angola the fiscal framework developed in Berg et al. (forthcoming) that incorporates investment inefficiency and absorptive capacity constraints, often encountered in developing countries. The sustainable investing approach, which combines a stable fiscal regime with external savings, can convert resource wealth to development gains while maintaining economic stability. Stochastic simulations demonstrate how the framework can be used to inform allocations between capital spending and external savings when facing uncertain oil revenues. An overly aggressive investment scaling-up path could result in insufficient fiscal buffers when faced with negative oil price shocks. Consequently, investment progress can be interrupted, driving up the capital depreciation rate, undermining economic stability, and lowering the growth benefits of public investment.

An Application to Angola

Investing Volatile Oil Revenues in Capital-Scarce Economies

Ms.Era Dabla-Norris

Luis-Felipe Zanna

Victor Duarte Lledo

Mr.Richard Allen

Eteri Kvintradze

Sophia Gollwitzer

Mr.Tej Prakash

This paper presents, for the first time, multi-dimensional indices of the quality of budget institutions in low-income countries. The indices allow for benchmarking against the performance of middle-income countries, across regions, and according to different institutional arrangements that deliver good fiscal performance. Using the constructed indices, the paper provides preliminary empirical support for the hypotheses that strong budget institutions help improve fiscal balances and public external debt outcomes; and countries with stronger fiscal institutions have better scope to conduct countercyclical policies.

Budget Institutions and Fiscal Performance in Low-Income Countries

Irene Yackovlev

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