Conference on Harnessing Natural Resource Wealth for Inclusive Growth and Economic DevelopmentKeynote Speech by Anoop Singh, Director of the Asia and Pacific Department, International Monetary Fund
Dili, September 18, 2013
As prepared for delivery
It is my honor and pleasure to welcome Prime Minister Gusmao, distinguished ministers, governors, ambassadors, heads of delegations, and our colleagues from civil society and the private sector who are participating in this conference on Harnessing Natural Resource Wealth for Inclusive Growth and Economic Development.
Let me start by thanking the Honorable Minister Emilia Pires and her staff of the Ministry of Finance for hosting this important event and working with the IMF to make this a success. I would also like to thank the conference co-hosts – our friends and colleagues from the ADB, WB and JICA for their efforts.
This is my first visit to TLS and I am struck by the authorities’ deep commitment to foster growth and development in a manner that is both sustainable and inclusive, as outlined in their comprehensive Strategic Development Plan. I am also impressed by the focus on putting in place best practices in governance – for instance, Timor-Leste has been ranked by the Revenue Watch Institute in its latest survey as number one in terms of Institutional and Legal Setting amongst natural resource rich developing countries and the Petroleum Fund is ranked number five out of 23 sovereign wealth funds assessed globally. I would like to congratulate the authorities and especially Minister Pires and central bank Governor Abraao on this achievement.
The Timorese authorities, and especially Minister Pires, have also taken the lead in the g7+ group that represents 19 fragile and post conflict states, most of which are natural resource producers. I am glad to see many countries from the g7+ are represented here. The IMF supports the g7+’s central aims of increased country ownership of policies and the special focus on conflict resolution and the building of appropriate state institutions as prerequisites for inclusive and sustainable growth.
This conference has brought together a diverse set of participants – senior officials, academics, civil society, and development partners from a wide range of countries- including from Asia, Africa, the Caribbean, and the Middle East. A common feature amongst all countries represented here today is that the extraction of natural resources—oil, gas, and minerals— plays a large role in their economies. Despite the financial crisis and slow economic growth affecting most advanced economies, the last several years have been highly successful ones for many natural resource rich countries who have benefited enormously from buoyant commodity prices linked to the rise of China and other emerging markets. Greater integration into global trade and financial networks—along with the implementation of coherent medium-term macroeconomic policy frameworks, structural reforms and attention to the strengthening of governance and economic and social institutions—has allowed many of these countries to grow faster than in previous decades and to outperform non resource rich countries. Strong growth is beginning to allow living standards to rise, institutions to develop, and financial sectors to deepen.
However, as all of us are aware, these gains can be fragile.
- In the short-term, continued uncertainties in the global economy and the type of turbulence that we have seen in recent weeks in emerging market economies can have negative implications for lower income countries. Although, resilience is much greater than in the past, nevertheless risks from a weak and uncertain global environment remain and policy makers need to be vigilant. Indeed, our latest IMF research indicates that fragile states’ growth is vulnerable to a slowdown in emerging markets through the commodity price and external demand channels: policy makers need to give more weight to bolstering reserves and maintaining room for maneuver in their fiscal policies.
- More fundamentally, dependence on natural resource endowments can be a mixed blessing. We are all familiar with the “resource curse” and the historic experience in many resource rich countries of boom-bust cycles, debt crises, and poor governance that have led to the persistence of poverty and lack of inclusiveness.
In this regard, I am pleased to note that this conference focuses on the key challenges faced by all countries in ensuring that resource wealth contributes in a sustained and inclusive fashion to growth and higher living standards for all. With this in mind, we have deliberately highlighted two key areas; macro-fiscal issues and ways to promote economic diversification. We aim to discuss these two broad areas through a combined approach that looks at best practices plus country experiences delivered by practitioners. We encourage questions and interactive dialogue in the sessions.
- We focus on the important role of fiscal policy in the economic management in natural resource rich countries, where the government typically plays a dominant role in the economy through its control of natural resources and associated income. Decisions regarding taxation, expenditures—importantly including public investment, the appropriate fiscal deficit, savings mechanisms such as the role of sovereign wealth funds and the governance framework will have enormous consequences—not just for today, but also for future generations—with the potential to ensure successful development or alternatively to destabilize the economy. To highlight these issues, we have several colleagues from the IMF and JICA and senior officials from TLS, Mongolia and Trinidad and Tobago who can discuss their countries’ experiences.
- Diversification is an absolutely key area especially given the simple facts that the natural resource sectors in themselves typically employ very few people, and that the resource is exhaustible. Clearly also, it is every challenging. For inclusive growth in addition to wise use of the resources it is imperative that backward and forward linkages are developed between the natural resource sector and the wider economy. Achieving this objective involves financial sector deepening, building infrastructure, enhancing human capital, and promoting the agricultural sector. To discuss these issues, we have a number of international experts including from the ADB, WB and JICA, and senior officials from TLS, Malaysia, Oman, Singapore, and Thailand who will discuss the country experiences. I am sure these presentations will highlight the interconnections in this broad topic.
The Policy Round Table on Thursday, that will also include Minister Pires, Dr Pasha, and Dr Sukhyar from Indonesia, will be an ideal opportunity to use our combined knowledge to identify best practices. I encourage the country authorities to make full use of the special session tonight to set out your views and to fully participate in the dialogue.
Finally, let me say a few words about how the IMF can help natural resource rich countries.
- The IMF also stands ready to be a partner, together with our co-hosts, in assisting you in putting in place the conditions for continued economic progress. Our primary objective is well known to you: to assist in entrenching macroeconomic stability and implementing the reforms that will enhance growth, for the benefit of all citizens.
- In pursuit of these goals, we are strengthening engagement with developing countries through increased bilateral and cross-country analysis and well-tailored policy advice. I would like to highlight that the latest edition of the IMF’s Finance and Development focuses on natural resource issues and my colleagues in the Africa Department have recently published a book on this subject and we have copies of both in your welcome package. An IMF policy paper discussed by our Board last year developed new macro-fiscal frameworks and policy analysis tools for resource-rich developing countries that are being piloted in a number of countries. A companion paper examined ways to better realize the revenue potential of extractive industries and both are available on the internet.
- We are also seeking ways to enhance your efforts to strengthen regional cooperation, and are looking for your ideas of how best to do this. We are committed to continuing to provide capacity building support to your countries and are seeking ways to expand our technical assistance capacity. We have increased substantially our technical assistance delivery to developing countries over the last couple of years, and opened regional technical assistance office and training centers across the world. In Asia, we have the STI in Singapore, PFTAC, and the newly opened regional technical assistance office for Myanmar and Laos. We have a number of such offices in Africa and the Caribbean. Also a topical trust fund for managing natural resource wealth is allowing us to scale up technical assistance to resource rich developing countries.
- Lastly, I would like to mention that to better respond to the needs of membership during the crisis, the IMF has created new lending facilities that are more flexible and better-tailored to the increasingly diverse needs of developing countries. Depending on the circumstances and nature of the balance of payments difficulties, these facilities can be useful to support structural reforms over the medium-term, or to provide precautionary financing to reinforce effective policies, or to respond to shocks such as those related to sudden increases in food and fuel prices or natural disasters.
To sum up, I look forward to two days of stimulating discussion around a very important topic. I hope that the open discussion format will spur new ideas and help you share new insights on natural resource management that can effectively be used when you return home.
I would like to once again thank you for joining us for this important conference, and I look forward to working with you in the future.