Abstract
This chapter discusses the ‘spend today’ and ‘save now-spend tomorrow’ approach of revenue allocation in the Democratic Republic of Congo (DRC), a very natural resource-rich country. The approach 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 chapter 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.
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Acknowledgments
I am grateful to Pierre-Richard Agénor for his invaluable support and guidance during the course of this study, to Keyra Primus for technical assistance, and to an anonymous reviewer for helpful comments. The views expressed in this chapter are my own and do not represent those of the World Bank. A more detailed version of this paper is available upon request.
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Moreira, E.P. (2017). Managing Resource Price Volatility: Exploring Policy Options for the Democratic Republic of Congo. In: Wamboye, E., Tiruneh, E. (eds) Foreign Capital Flows and Economic Development in Africa. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-53496-5_21
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DOI: https://doi.org/10.1057/978-1-137-53496-5_21
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