From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia

32 Pages Posted: 26 May 2015

See all articles by Pranav Gupta

Pranav Gupta

International Monetary Fund (IMF)

Bin (Grace) Li

International Monetary Fund

Jiangyan Yu

International Monetary Fund (IMF)

Date Written: April 2015

Abstract

Some resource-rich developing countries are in the process of harnessing immense mining resources towards inclusive growth and prosperity. Nevertheless, tapping into natural resources could be challenging given the large front-loaded investment, volatile capital flows and exposure to global commodity markets. Public investment is needed to remove the often-large infrastructure gap and unlock the economic potential. However, too rapid fiscal outlays could push the economy to its limit of absorptive capacity and increase macro-financial vulnerabilities. This paper utilizes a structural model-based approach to analyze macroeconomic impacts of different public investment strategies on key fiscal and non-fiscal variables such as debt, consumption, sovereign wealth fund, and real exchange rates. We apply the model to Mongolia and draw policy recommendations from the analysis. We find that fiscal policy adjustment, particularly moderating infrastructure investment and optimizing investment efficiency is needed to maintain macroeconomic and external stability, as well as to boost the long-term sustainable growth for Mongolia.

Keywords: Natural resources, Mongolia, Commodity boom, Mining sector, Revenues, Economic growth, Sustainable development, Fiscal sustainability, investment, debt, public investment, budget, public debt, deficit, developing countries

JEL Classification: E62, F34, Q32

Suggested Citation

Gupta, Pranav and Li, Bin (Grace) and Yu, Jiangyan, From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia (April 2015). IMF Working Paper No. 15/90. Available at SSRN: https://ssrn.com/abstract=2609673

Pranav Gupta (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bin (Grace) Li

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://binli.economics.googlepages.com/

Jiangyan Yu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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