Suchergebnisse

When a country discovers large new natural resource energy reserves, its citizens are gifted with possibility of financing a great economic transformation. Yet, often, the state which manages the transformation fails to deliver a sufficient high and well timed contribution to the well being of current and future citizens. Is it a lack of depth in financial markets or political impatience to spend that best explains the failure of energy revenues to achieve its potential? I answer this question with a model where both resource revenues and returns to the public sector's financial and physical assets and its liabilities are uncertain. Calibrating for Colombia, I find that when policymakers discount at 20%, 18pp below the social rate, the welfare cost is equivalent to about a quarter of consumption forever, the net stock of assets is much smaller than it should be and discretionary expenditures are very sensitive to surprise resource revenues. If financial markets are sufficiently underdeveloped, we can generate welfare costs of the same magnitude. But shallow financial markets cannot also explain why there are insufficient net effective assets as seems to be the case in Colombia, nor can they explain a heightened sensitivity to revenues. As political impatience is thus the main culprit, a continued emphasis on fiscal policy arrangements that directly address the temptation to spend too soon is warranted.

Kuwait's domestic electricity and water sector has been in disarray for several years, struggling with fast-rising demand for several decades as a result of rapid industrialization, population growth, rising living standards as well as due to the artificially low utility prices set by the government. We use a model-based methodology to compare the current pricing scheme against an alternative where consumer prices are raised to market levels and consumers are on average compensated by cash transfers that do not distort their economic decisions. Our main finding is that a realignment of prices at or closer to the market price level confers a benefit on current and future generations of Kuwaitis, in terms of fiscal savings, that outweighs the impact of raising electricity and water consumer prices to market price levels. Specifically, in the market price scenario with consumer prices at about ten times current levels, there is a total fiscal cost of about one-third of the value of fuel input used in the power sector (or about 1.5 per cent of GDP), entirely due to the cash transfer. This, however, is just less than one-fifth of the fiscal cost of the current low-price regime, and in principle represents a massive saving. The net benefit of moving to market prices is 6.3 per cent of GDP. By implication, if it is judged that a cash transfer scheme, undifferentiated by usage, can help gain acceptance for the price reform, it is shown to be affordable. We also show that the shift to market pricing will be a more efficient route to achieving spare capacity in the electricity and water system.

Kuwait's electricity and water sector has been in disarray for several years, struggling with several decades of fast-rising demand resulting from industrialization, rapid population growth, rising living standards amongst its citizens, as well as the artificially low consumer prices set by the government. The country's electricity demand has been growing at an impressive rate, estimated at an annual rate of 5.3 per cent between 1999 and 2009, and its per capita electricity consumption has exceeded 16,000 kWh, one of the highest in the world. With per capita water consumption of 500 litres per day, Kuwait is also the world's largest water consumer. According to Kuwait Institute for Scientific Research (KISR), the current cost of providing a reliable source of fresh water in Kuwait (principally through desalination plants) exceeds US$1.2 billion annually. By 2050, given current consumption patterns, it is estimated that the majority of the country's oil-generated revenue will be required to fund the increased production of desalinated water.