## IMF-JICA CONFERENCE SESSION I - B: Public Financial Management in Resource – Rich Countries — Noriharu MASUGI

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### Aim of the Study
- Volatile commodity prices are affecting fiscal positions of JICA’s client countries, especially natural resource-dependent countries.
- Objectives:
  - Assessment of fiscal policies and risks associated with natural resources.
  - Research review and case studies in Malaysia, Mongolia and PNG.
  - Derive lessons learned and apply them to JICA’s knowledge and practice on PFM.

### JICA’s Yen Loan to RRCs (Outstanding JFY 2015)
- Regional distribution of outstanding yen loans (JFY 2015):
  - East Asia and Pacific: 15%
  - Middle East and North Africa: 3%
  - Europe and Central Asia: 1%
  - Latin America and the Caribbean: 1%
  - Africa: 1%
  - MDB: 2%
  - Non-RRCs: 77%
- Definition: RRC = exporters of oil, gas, and metals (copper, gold, iron, silver) where these commodities represent a large share of exports (20% or more of total exports) or fiscal revenues.
- Source basis: Fiscal Monitor, IMF (Oct. 2015); figures from JICA’s Annual Report 2016.

### Mine Development: Investment, Income and Cost
- Presentation includes schematic depiction of mine development phases with associated investment, income and cost dynamics.
- Income and cost composition figure highlighted a "62%" label in the income/cost slide.

### Revenue and Expenditures — Cross-country Patterns
- Countries with more than 20% of exports from nonrenewable commodities are highlighted by major commodity (examples shown: Oil and Gas; Copper, Gold, Coal; Gold, Copper, Oil; Petroleum).
- Source cited: Natural Resource Governance Institute.

### Impediments to Fiscal Discipline
- Identified impediments:
  - Commodity prices are more volatile.
  - High expectations for revenue from new mining; tendency to overborrow.
  - Exposure to a rebalancing in China.
  - Appetite for infrastructure investment.
  - Expansionary fiscal policy, inflationary pressures, rising welfare spending.
- Other contextual figures and sources:
  - US$8 tn (2010-2020) cited from Commodity Market Monthly, IMF (2016).
  - Growth projections: 2016 6.7% and 2017 6.5% (Source: WEO, IMF (2017)).
  - Infrastructure demand reference: Infrastructures for a Seamless Asia, ADB (2009).
  - Asia growth context: Asia Development Outlook, ADB (2016).

### Country Case Studies — Mongolia, Papua New Guinea (PNG), Chile
- Mongolia:
  - Charts link fiscal balance, revenue, expenditure to copper and coal prices (2001–2013) with commodity price series in US$/ton and fiscal variables in % of GDP.
  - Timeline annotations include tax and legal changes (e.g., Windfall tax expired; Minerals Law revised; Mg Dev’t Fund; Fiscal Stabilization Law enacted).
  - Fiscal policy actions noted: CIT%↓, VAT%↓, Excise↑, New Mining Law↑.
- Papua New Guinea (PNG):
  - Charts show Fiscal Balance (LHS) and Gold, Copper, Oil Price (RHS) for 2007–2014 with commodity prices in US$/troy ounce and US$/barrel and fiscal variables in % of GDP.
  - Reported policy and institutional developments: Public investment↑, Education & Health↑ (2006); General Account Budget public investment↑ (2015); Start SWF, Organ. law, EITI candidacy noted; election spending and trust account discussions continue into 2017.
  - Noted events: PNG LNG agreements, LNG production and construction phases; increases in minimum wage; oil export fluctuations.
- Chile:
  - Charts show Fiscal Balance and Copper Price (2007–2015) with fiscal variables in % of GDP and copper price in US$/ton.
  - Noted institutional measure: Fiscal Responsibility Law.

### Fiscal Discipline and Fiscal Adjustment
- Observations across cases:
  - Resource windfalls often lead to increases in public investment, social welfare programs, civil service wages, and public debt.
  - Episodes of fiscal deterioration coincide with commodity price downturns.
  - Legal and institutional responses include Fiscal Stabilization Laws, Debt Management Law, and creation/management of Sovereign Wealth Funds (SWFs) or trust accounts.
- Time series evidence presented for fiscal balances versus commodity prices across Mongolia, PNG, and Chile.

### Resource and Nonresource Balances — Framework
- Framework components:
  - Resource Balance items: Tax from extraction companies, Tax from exports of natural resources, Royalties, Mining Tax, Bonus, Exploration Fee, Resource related investments, Offshore and Domestic Savings.
  - Nonresource Balance items: VAT, CIT, PIT, Trade, Other tax, SOE revenue, dividends, Capital investments, Current expenditures.
- Fiscal objective: Insulate Resource and Nonresource Balance; Stabilize, Buffer, and manage Revenue, Investment, Expenditure and Savings within a fiscal framework.

### Institutional Challenges
- Identified institutional challenges:
  - Ministry of Finance/Central Bank: revenue collection, government account and cash flow management, fiscal rules, MTFF (medium-term fiscal framework), internal audit, monetary policy.
  - Other agencies: infrastructure planning and public investment management, industrial planning, social and economic planning, human resource development, external & internal audits, monitoring and reporting.
  - Political commitment and governance issues.

### Potential Areas of Technical Assistance (TA) — PFM Focus
- Suggested TA areas and country examples:
  - Increase non-mineral tax revenue by strengthening tax administration (Mongolia, Indonesia, Vietnam, Cambodia, etc.).
  - Support formulating quality and feasible Public Investment Plan, including PPP formulation (Bangladesh, Laos, Indonesia, Vietnam, Philippines, etc.).
  - Enhance practical knowledge and skills of PFM and Debt Management by organizing workshops (Joint workshops held by JICA/WB and IMF/WB/JICA).
  - Increase transparency by strengthening audits and supporting EITI membership (Mongolia, etc.).
  - Other than PFM: Promote non-mineral sectors, Industrial planning, Value-chain development, SME financing (associated with yen loan), etc.

### Key Questions for Policy Discussion
- What are the efforts being made to comply with fiscal discipline?
- How do you manage resource revenue? Can you share your challenges and/or good practices?
- How do you control other potential risks associated with resource windfall?
- What type of TA is necessary, if any, to overcome challenges and/or cope with risks above?
- What do your people expect to benefit from resource windfall? How does your government keep their commitments?

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_Source: https://www.imf.org/-/media/files/news/seminars/1b_presenter_masugi.pdf_