## _sdn1204 — Executive Summary

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### Overview and purpose
- Examines options for fiscal policy frameworks in resource rich developing countries and reassesses the role of the permanent income hypothesis (PIH), especially for low-income countries seeking to scale up growth-enhancing expenditure.
- Concludes fiscal policy frameworks should:
  - reflect country-specific factors, which may change over time;
  - promote the sustainability of fiscal policy;
  - be sufficiently flexible to enable scaling up growth-enhancing expenditure, especially in low-income countries;
  - consider absorption capacity constraints and the quality of public financial management systems;
  - provide adequate precautionary buffers in countries vulnerable to high volatility and uncertainty of resource revenue;
  - could be supported by resource funds if they are properly integrated with the budget and the fiscal policy anchor.

### Key policy questions addressed
- How to ensure short-term macroeconomic and fiscal stability given volatility, uncertainty, and exhaustibility of resource revenues?
- How to achieve long-term fiscal sustainability and adequate savings for future generations while allocating sufficient resources to meet development needs?
- How to address absorption capacity constraints that could limit the quality and effectiveness of scaled-up spending?

### Guiding principle
- Fiscal framework design should take into account country-specific economic and institutional circumstances, such as resource revenue dependency, reserve horizon, and development needs.
- Simple modifications to existing fiscal frameworks can allow more flexible treatment of growth-enhancing expenditure while addressing volatility and exhaustibility of resource revenue.

---

### Fiscal framework objectives
- A fiscal policy framework should contain:
  - indicators to assess the fiscal stance;
  - a benchmark for assessing long-term fiscal sustainability;
  - a rule that anchors the short- to medium-term fiscal policy path;
  - requisite institutional set-up (capacity for long-term revenue forecasts and medium-term orientation).
- The fiscal policy framework should ensure:
  - macro-fiscal stability;
  - fiscal sustainability for countries with temporary resource revenue flows;
  - scaling up growth-enhancing expenditure, possibly gradual if absorption and institutional capacity constraints are large;
  - adequate accumulation of precautionary savings.
- Indicative thresholds (country-specific weighting required):
  - revenue dependency could be in the range of 20 to 25 percent of total fiscal revenue;
  - reserve horizon could be set at 30 to 35 years (about one generation).

### Classification implications (by resource horizon and capital scarcity)
- Resource revenue temporary + ample capital: accumulate sufficient financial savings for future generations (example: Norway).
- Resource revenue temporary + scarce capital: balance saving and domestic investment to increase non-resource growth (examples: Ghana, Uganda).
- Resource revenue long-lasting + ample capital: manage volatility and achieve macro-fiscal stability (examples: Saudi Arabia, Kuwait, other Gulf Cooperation Council countries).
- Resource revenue long-lasting + scarce capital: invest domestically while maintaining macro stability; gradual scaling up given absorption constraints (examples: Nigeria, Angola, Iraq).

---

### Long-term fiscal sustainability and the PIH
- Fiscal framework design should be guided by long-term fiscal sustainability that accounts for exhaustibility of resource revenue.
- Standard PIH approach:
  - For a country with only resource revenues, the intertemporal budget constraint is satisfied when yearly spending (the non-resource primary deficit) is limited to the perpetuity value of resource wealth (present value of all future resource revenue).
  - Provides a benchmark for the non-resource primary fiscal balance and an estimate of “sustainable” level of expenditure.
  - Sensitive to critical parameters (e.g., the price of natural resources and the discount rate).
- Empirical practice and critique:
  - Long-term sustainability assessments have typically relied on the PIH, often with ad-hoc refinements (e.g., finite-period annuities).
  - PIH may be too tight for LICs because capital scarcity implies high returns to capital and the need to finance government investment to escape poverty traps.
  - Investing more resource revenues domestically could raise potential non-resource growth and expand fiscal space.
- Broader intertemporal approach:
  - Present value of future non-resource primary balances must be ≤ net government wealth (financial plus natural resources in the ground).
  - Requires estimating interactions between government spending and non-resource growth and accounting for recurrent and replacement costs of public investment.
  - Countries with substantial net government wealth could draw down part to build physical and human capital and stabilize net wealth at a lower level over time; long-run stabilization targets are country-specific.

---

### Fiscal decomposition and intertemporal budget constraint (Box 1 summary)
- Overall fiscal balance in year t decomposed into:
  - resource revenue (tRT),
  - non-resource revenue (tNRT),
  - primary expenditure (tE),
  - income from initial stock of financial assets (1tA−),
  - interest payments on initial stock of debt (1tD−).
- Overall balance equals change in net financial assets (ttt OBAD ≡ Δ−).
- Non-resource primary balance: NRPBtt ≡ NRTt − Et.
- Intertemporal budget constraint (as presented in source) under constant discount rate i and no-Ponzi:
  - ( ) ( ) 11 11 . 11 N ss tt stst stst NRPBRT AD ii −− − + − + = == − = − − + + ∑∑ (equation as presented in the source).
- Government natural-resource asset (resource wealth) and net wealth definitions are provided in the source (equations as presented).

### PIH benchmark and alternatives (Box 1 summary)
- PIH benchmark: constant real non-resource primary balance over time; annual level equals return on net wealth using notional real return r̃ (r̃ = 1 i π π − in the source’s format).
- Under PIH-consistent rule: (1t) NRPBrW − = − r̃ (as presented in the source).
- Pros of PIH-based benchmark:
  - Simple if long-run resource wealth estimates available;
  - Based on optimality considerations (under restrictive assumptions);
  - Preserves resource wealth; provides long-term sustainability benchmark.
- Cons of PIH-based benchmark:
  - Incompatible with LIC characteristics (capital scarcity, credit constraints);
  - Preserving resource wealth may not be optimal for LICs; ill-suited to assess investment.
- Pros of broader fiscal sustainability framework:
  - Based on intertemporal budget constraint; considers growth impacts and recurrent/replacement costs of investment.
- Cons of broader framework:
  - More complex, demanding data and country-specific assessments.

---

### Short- to medium-term fiscal anchors and indicators
- Anchor options:
  - Non-resource primary balance rules (directly ties policy to sustainability benchmarks).
  - Resource price-based rules (smoothed revenue targets) or structural balance rules (adjusted for cycle).
- Key fiscal indicator recommended:
  - Non-resource primary balance, preferably scaled to non-resource GDP.
    - Measures underlying fiscal stance and government domestic demand.
    - Helps delink policy from resource revenue volatility.
- Other indicators and practical considerations:
  - Overall (or primary) balance: common, but can be procyclical in resource-dependent countries.
  - Current balance (excludes public investment): practical drawback — unclear anchor and classification incentives.
  - Domestic balance (excluding transactions with rest of world): attractive for scaling investment but hard to measure import content.
- Note on scaling indicators:
  - Indicators and targets should ideally be expressed in terms of non-resource GDP given high volatility of resource GDP.

---

### Options and practicalities for fiscal anchors (Box 3 and Box 2 synthesis)
- PIH-based rules:
  - Explicitly link to exhaustibility—relevant for short reserve horizons.
  - Different PIH formulations produce different spending paths (e.g., constant real spending vs. spending constant relative to non-resource GDP).
  - Practical challenge: spending paths sensitive to revenue forecast volatility; strengthen bottom-up project-based forecasting with sensitivity analysis.
- Modified PIH for LICs:
  - Allows front-loaded, resource-financed capital investment with transparent approval and acceptance of less-smoothed expenditure paths anchored within sustainable use estimates.
- Finite optimization horizon (bounded annuity):
  - Front-loads expenditure with depletion after the period and requires gradual future adjustment to avoid abrupt falls in the non-resource primary balance.
- Price-based and structural rules:
  - Price-based: smooth resource revenue; may ignore exhaustibility and production regime changes; reference prices via formulas or independent committees (Chile example).
  - Structural balance: adjusts for cycle where possible; used where cycle estimation feasible.
- Expenditure growth and non-resource current balance rules:
  - Expenditure growth rule: limits nominal/real spending growth or percent of non-resource GDP; useful when absorption constraints exist.
  - Non-resource current balance rule (golden rule/Hartwick): excludes capital spending; merits and practical problems (misclassification incentives, fragmentation).
- Borrowing and deficit flexibility:
  - Gradual increase in non-resource deficit targets recommended when absorption constraints exist.
  - Fiscal frameworks can allow some debt accumulation within explicit limits; borrowing including collateralization of resource revenue is potentially expensive and risky.
- Absorptive capacity:
  - Pace of scaling-up must consider macro indicators (inflation, real exchange rate, blackouts) and micro indicators (PIMI, PEFA).
  - Strengthen public investment management: project appraisal, procurement, PFM reforms to secure growth benefits.

---

### Resource revenue volatility, precautionary saving, and buffers
- Fiscal anchors must account for price and production volatility; part of windfalls should be saved for busts.
- Higher dependency on resource revenue strengthens the case for precautionary saving.
- Stochastic simulations example:
  - For Nigeria, a precautionary buffer stock of 60 percent of annual oil revenue is suggested to be reasonably confident of maintaining a smooth government spending path over three years.
- Alternatives to self-insurance (borrowing, contingent instruments) may be costly relative to fiscal buffers.
- Ways to build precautionary savings:
  - More ambitious price-based/structural targets (e.g., structural surplus);
  - Prudential factors in PIH frameworks by applying larger discounts to derive conservative spending;
  - Overall balance floors to generate fiscal savings.
- Flexibility vs. credibility:
  - Anchors need flexibility without undermining credibility.
  - Practices: procedural rules rather than fixed numerical targets (Chile example); flexible guidelines (Timor-Leste, Norway); explicit revision clauses (e.g., reassess every four years).

---

### Role and design of resource funds
- Resource funds are useful tools for macro-fiscal management but not substitutes for fiscal policy or fiscal rules.
- Empirical evidence: no significant differences in fiscal stance between countries with rigid-inflow/outflow funds and others; lack of borrowing constraints can undermine fund effectiveness.
- Principles:
  - Sustainable accumulation in a fund should derive from actual fiscal surpluses.
  - Funds may be used to pay down public debt instead of accumulating assets.
- Appropriate roles:
  - Support implementation of sound fiscal policies and countercyclical financing.
  - Enhance transparency and credibility by making resource revenues and savings visible.
  - Maximize yield of government financial savings aligned with fiscal objectives.
- Integration and governance:
  - Funds should be integrated into the budget and not have authority to spend outside the budget.
  - Avoid “development funds” with independent spending authority; if used for communication, they should have no capacity to spend.

---

### Country experience, compliance, and examples (Appendices synthesis)
- PIH usage in IMF advice (Appendix II survey):
  - In most surveyed countries, IMF did not advocate PIH as main policy target.
  - Eight out of seventeen surveyed countries discussed the PIH.
  - In six countries (Azerbaijan, Gabon, Norway, Republic of Congo, Russia, Timor-Leste) the PIH-derived (non-oil) fiscal indicator was used as an actual target.
  - In other countries, staff emphasized non-PIH indicators (e.g., price-based rules) and medium-term frameworks.
- Selected country frameworks and notes (Appendix III highlights):
  - Norway: cyclically adjusted non-oil deficit = 4 percent of SWF assets (flexible, strong political consensus).
  - Chile: structural balance institutionalized in 2006; independent committee sets long-term price; supported by stabilization and savings funds.
  - Timor-Leste: PIH-based guideline using estimated sustainable income (ESI) = 3 percent of petroleum fund balance + PV of expected future receipts; deficits can exceed ESI with parliamentary approval; recent scaling-up doubled spending relative to ESI.
  - Nigeria: 3 percent of GDP federal deficit ceiling at budget oil price (not strictly followed); Excess Crude Account receives windfalls with ad-hoc withdrawals.
  - Papua New Guinea: 5-year medium-term strategy sets non-mineral deficit ceiling in line with “normal” mineral revenue; largely followed but volatility when expressed in total GDP.
  - Mongolia, Russia, Ecuador, Azerbaijan, Ghana, Equatorial Guinea, Peru, Trinidad & Tobago, Venezuela: varied frameworks, compliance, and use of funds summarized in Appendix III.
- Appendix I descriptive statistics (selected numbers preserved exactly):
  - Algeria (DZA): Resource exports 98; Resource revenue 73; Revenue to Total GDP 29.7; R/P ratio 35.2; GDP Per Capita PPP Level 6,950.
  - Angola (AGO): Resource exports 95; Resource revenue 78; Revenue to Total GDP 35.0; R/P ratio 20.0; GDP Per Capita PPP Level 5,632.
  - Azerbaijan (AZE): Resource exports 94; Resource revenue 64; Revenue to Total GDP 25.6; R/P ratio 32.2; GDP Per Capita PPP Level 10,033; Overall PIMI score 1.5.
  - Bolivia (BOL): Resource exports 53; Resource revenue 21.3; Revenue to Total GDP 19.5; R/P ratio 4.5; GDP Per Capita PPP Level 4,592; Overall PIMI score 2.4.
  - Botswana (BWA): Resource exports 66; Resource revenue 63; Revenue to Total GDP 22.6; R/P ratio 18.6; GDP Per Capita PPP Level 15,489; Overall PIMI score 2.4.
  - Brunei Darussalam (BRN): Resource exports 96; Resource revenue 90; Revenue to Total GDP 45.2; GDP Per Capita PPP Level 48,892.
  - Chad (TCD): Resource exports 89; Resource revenue 67; Revenue to Total GDP 15.2; R/P ratio 33.7; GDP Per Capita PPP Level 1,698; Overall PIMI score 1.0.
  - Chile (CHL): Resource exports 53; Resource revenue 23; Revenue to Total GDP 6.2; R/P ratio 27.3; GDP Per Capita PPP Level 15,002.
  - Congo, Rep. of (COG): Resource exports 90; Resource revenue 82; Revenue to Total GDP 32.6; R/P ratio 18.2; GDP Per Capita PPP Level 4,427; Overall PIMI score 0.5.
  - Ecuador (ECU): Resource exports 55; Resource revenue 24; Revenue to Total GDP 7.4; R/P ratio 34.1; GDP Per Capita PPP Level 7,776.
  - Equatorial Guinea (GNQ): Resource exports 99; Resource revenue 91; Revenue to Total GDP 31.2; R/P ratio 17.1; GDP Per Capita PPP Level 18,143.
  - Kazakhstan (KAZ): Resource exports 60; Resource revenue 40; Revenue to Total GDP 10.5; R/P ratio 60.3; GDP Per Capita PPP Level 12,603; Overall PIMI score 2.4.
  - Kuwait (KWT): Resource exports 93; Resource revenue 95; Revenue to Total GDP 61.9; R/P ratio 114.2; GDP Per Capita PPP Level 37,849.
  - Nigeria (NGA): Resource exports 97; Resource revenue 76; Revenue to Total GDP 21.7; R/P ratio 65.6; GDP Per Capita PPP Level 2,422; Overall PIMI score 1.1.
  - Norway (NOR): Resource exports 62; Resource revenue 29; Revenue to Total GDP 15.3; R/P ratio 13.6; GDP Per Capita PPP Level 52,013.
  - Peru (PER): Resource exports 81; Resource revenue 93; Revenue to Total GDP 8.3; R/P ratio 5.0; GDP Per Capita PPP Level 9,330; Overall PIMI score 2.6.
  - Qatar (QAT): Resource exports 88; Resource revenue 58; Revenue to Total GDP 22.6; R/P ratio 143.7; GDP Per Capita PPP Level 88,559.
  - Russia (RUS): Resource exports 50; Resource revenue 29; Revenue to Total GDP 11.0; R/P ratio 48.8; GDP Per Capita PPP Level 15,837.
  - Saudi Arabia (SAU): Resource exports 87; Resource revenue 79; Revenue to Total GDP 42.0; R/P ratio 75.5; GDP Per Capita PPP Level 23,826.
  - Timor-Leste (TLS): Resource exports 99; Resource revenue 70; Revenue to Total GDP 60.9; GDP Per Capita PPP Level 2,861.
  - Trinidad and Tobago (TTO): Resource exports 38; Resource revenue 49; Revenue to Total GDP 17.4; R/P ratio 9.7.
  - Yemen (YEM): Resource exports 82; Resource revenue 68; Revenue to Total GDP 22.0; R/P ratio 42.8; GDP Per Capita PPP Level 2,598; Overall PIMI score 0.8.
  - Zambia (ZMB): Resource exports 72; Resource revenue 40.8; Revenue to Total GDP 26.0; GDP Per Capita PPP Level 1,512; Overall PIMI score 1.9.
- Note: Appendix I contains fuller country-level descriptive statistics (averages 2006–10) and sources reported as IMF staff estimates; BP 2011 Statistical Review of World Energy; UNDP Human Development Index; Gupta et al., 2011.

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### Conclusions and guiding principles (policy recommendations)
- Fiscal frameworks should reflect country-specific characteristics: revenue dependency, volatility, and resource revenue horizon that may change over time.
- Frameworks should ensure fiscal sustainability via PIH frameworks or stabilizing government net wealth (possibly below current levels).
- Policymakers can choose fiscal anchors that primarily address sustainability (PIH-based) or short-term demand management (price-based or structural balance); country characteristics guide the choice.
- Frameworks should be sufficiently flexible to enable scaling-up of growth-enhancing expenditure, especially in LICs.
- In countries with large absorption constraints, the pace of scaling-up should be gradual while reinforcing public financial management systems and easing supply constraints.
- Volatility and uncertainty of resource revenue are critical; sufficient precautionary fiscal buffers and strong revenue forecasting with medium-term spending plans are essential.
- Credibility and transparency can be supported by a well-designed resource fund, but funds cannot substitute for appropriate policy frameworks nor obviate the need to strengthen fiscal management capacity; funds must be fully integrated with the budget and fiscal framework.

*Source: _sdn1204 - Executive Summary*

### Executive Summary ......................................................................................................

### EXECUTIVE SUMMARY

### Overview
- Examines options for fiscal policy frameworks in resource rich developing countries, reassessing the role of the permanent income hypothesis (PIH), especially in low-income countries seeking to scale up growth-enhancing expenditure.
- Concludes fiscal policy frameworks should:
  - reflect country-specific factors, which may change over time;
  - promote the sustainability of fiscal policy;
  - be sufficiently flexible to enable scaling up growth-enhancing expenditure, especially in low-income countries;
  - consider absorption capacity constraints and the quality of public financial management systems;
  - provide adequate precautionary buffers in countries that are vulnerable to high volatility and uncertainty of resource revenue;
  - could be supported by resource funds if they are properly integrated with the budget and the fiscal policy anchor.

### Key questions addressed
- How to ensure short-term macroeconomic and fiscal stability given volatility, uncertainty, and exhaustibility of resource revenues?
- How to achieve long-term fiscal sustainability and adequate savings for future generations while allocating sufficient resources to meet development needs?
- How to address absorption capacity constraints that could limit the quality and effectiveness of scaled-up spending?

---

### I. Introduction (contextual points)
- Large economic rents from commodity price increases and new reserves create opportunities to promote economic and social development, build human capital, and reduce infrastructure gaps.
- The literature documents the “resource curse” and related challenges (e.g., Dutch Disease, limited absorptive capacity, rent-seeking behavior, poor institutions).
- Much debate has been dominated by the PIH; recent research questions its relevance for low-income countries (LICs) that are capital and credit constrained and may need more flexible fiscal frameworks to allow scaling up of growth-enhancing spending.
- The IMF has been criticized (including by the Independent Evaluation Office) for being too rigid in underpinning policy recommendations with the PIH.
- Guiding principle: fiscal framework design should take into account country-specific economic and institutional circumstances, such as resource revenue dependency, reserve horizon, and development needs.
- Simple modifications to existing fiscal frameworks can allow more flexible treatment of growth-enhancing expenditure while addressing volatility and exhaustibility of resource revenue.
- Ultimate success depends on political commitment; this paper abstracts from political economy analysis but reviews compliance with intended frameworks (Section IV).

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### II. Fiscal Framework Objectives
- A fiscal policy framework should contain:
  - indicators to assess the fiscal stance;
  - a benchmark for assessing long-term fiscal sustainability;
  - a rule that anchors the short- to medium-term fiscal policy path;
  - requisite institutional set-up (capacity for long-term revenue forecasts and medium-term orientation).
- The fiscal policy framework should ensure:
  - macro-fiscal stability;
  - fiscal sustainability for countries with temporary resource revenue flows;
  - scaling up growth-enhancing expenditure, possibly gradual if absorption and institutional capacity constraints are large;
  - adequate accumulation of precautionary savings.
- The weight assigned to objectives should reflect country-specific characteristics; indicative thresholds:
  - revenue dependency could be in the range of 20 to 25 percent of total fiscal revenue;
  - reserve horizon could be set at 30 to 35 years (about one generation).
- Classification implications:
  - Resource revenue temporary + ample capital: key issue to accumulate sufficient financial savings for future generations (example: Norway).
  - Resource revenue temporary + scarce capital: balance accumulating financial savings and investing resource revenue domestically to increase non-resource growth (examples: Ghana, Uganda).
  - Resource revenue long-lasting + ample capital: center on managing volatility and achieving macro-fiscal stability (examples: Saudi Arabia, Kuwait, other Gulf Cooperation Council countries).
  - Resource revenue long-lasting + scarce capital: invest revenues domestically while maintaining macroeconomic stability; gradual scaling up may be needed given absorption constraints (examples: Nigeria, Angola, Iraq).
- Principles for estimating reserves:
  - include deposits only with an approved commercial development plan;
  - for countries with diversified project portfolios, account for probable reserves to capture potential upside;
  - for countries relying on only one project, account for proven reserves to be more prudent.

---

### III. Long-Term Fiscal Sustainability
- Fiscal framework design should be guided by long-term fiscal sustainability: whether government can sustain current spending, tax, and other policies in the long run without threatening solvency or defaulting.
- For resource-rich countries, assessments must take into account exhaustibility of resource revenue.
- The standard PIH approach:
  - implies that for a country with only resource revenues, the intertemporal budget constraint is satisfied when yearly spending (the non-resource primary deficit) is limited to the perpetuity value of resource wealth (the present value of all future resource revenue).
  - provides a benchmark for the non-resource primary fiscal balance and an estimate of “sustainable” level of expenditure.
  - is sensitive to critical parameters (e.g., the price of natural resources and the discount rate) because of the long projection horizon.
- Empirical practice:
  - long-term fiscal sustainability assessments in resource-rich countries have typically relied on the PIH (survey of IMF country papers, Appendix II).
  - applications have used ad-hoc refinements (e.g., assuming depletion of resource wealth over a finite period through a time-bound annuity rather than the PIH perpetuity).
  - the IMF has not advocated PIH-based fiscal anchors for conducting fiscal policy in most countries.
- Criticisms of the PIH for LICs:
  - PIH may be too tight for low-income countries because capital scarcity implies high returns to capital and difficulty financing government investment needed to escape poverty traps.
  - Low and uncertain returns on foreign assets make domestic investments relatively more attractive.
- Alternative considerations:
  - Investing more resource revenues domestically could raise potential non-resource growth and create a virtuous cycle of increased fiscal space.
  - The optimal non-resource primary balance may be below the level prescribed by standard PIH-based models when starting capital stock is below steady state and government can realize fiscal dividends of additional growth.
  - A more holistic approach derives long-term fiscal paths consistent with the intertemporal budget constraint: the present value of future non-resource primary balances (in absolute terms) must be less than or equal to net government wealth (financial plus natural resources in the ground).
  - Such dynamic assessments are computationally demanding: require estimating interactions between government spending and non-resource growth, growth impact, and recurrent and replacement costs of additional public investment.
  - Countries with substantial net government wealth could draw down part of it to build physical and human capital, stabilizing net wealth at a lower level over time; the specific long-run stabilization target requires country-specific responses.

---

*Source: _sdn1204 - Executive Summary*

### Box 1. Fiscal Sustainability Analysis for Resource-Rich Countries

### Box 1. Fiscal Sustainability Analysis for Resource-Rich Countries

### Fiscal decomposition and intertemporal budget constraint
- The overall fiscal balance in year t can be decomposed into:
  - resource revenue (tRT),
  - non-resource revenue (tNRT),
  - primary expenditure (tE),
  - income from the initial stock of financial assets (1tA−),
  - and interest payments on the initial stock of debt (1tD−).
- In nominal terms the overall balance is written as:
  - 11, ad tttttttt OBNRTERTi Ai D −− = − + + −  (as presented in the source).
- The overall fiscal balance equals the change in net financial assets, (ttt OBAD ≡ Δ−).
- The non-resource primary balance is defined as NRPBtt ≡ NRTt − Et.
- Resource-rich countries may run overall fiscal surpluses during resource-revenue booms, enabling accumulation of large stocks of financial assets even while the non-resource primary balance is in deficit.
- The intertemporal budget constraint requires the initial stock of net financial assets to equal the present value of cumulative future primary balances, which for countries with exhaustible natural resources comprises:
  - the non-resource primary balance, and
  - net resource revenue (only for a fixed period of time, N).
- Assuming constant discount rate i for assets and debt and the no-Ponzi condition, the constraint is expressed in the source as:
  - ( ) ( ) 11 11 . 11 N ss tt stst stst NRPBRT AD ii −− − + − + = == − = − − + + ∑∑ (equation as presented in the source).
- Government natural-resource asset (resource wealth) is the present value of future resource revenue; net wealth (1tW−) at end of period 1t− is:
  - 11111 11, where V . 11 N ss ttttt stst stst NRPBRT WADV ii −−−−− − + − + = == ≡ − + = − ≡ + + ∑∑ (equation as presented in the source).

### Permanent Income Hypothesis (PIH) benchmark and alternatives
- The PIH provides a simple benchmark by assuming a constant non-resource primary balance over time.
- The annual level of the primary balance that can be sustained indefinitely should be no greater than the return on net wealth; the source states the notional real return on wealth is the real interest rate r̃, adjusting for inflation (π) and nominal interest rate i, expressed in the source as r̃ = 1 i π π − (format as presented).
- Under the PIH-consistent rule (real non-resource primary balance constant):
  - (1t) NRPBrW − = − r̃  (as presented in the source).
- Alternative, more restrictive benchmarks could be:
  - keep real spending constant per capita, or
  - keep real spending constant as a share of non-resource GDP.
- The source notes pros and cons of PIH-based vs. broader fiscal sustainability frameworks and provides a comparative Table 1 (summarized points below).

Pros of PIH-based benchmark—Fiscal sustainability framework—government net wealth
- Simple to apply if estimates of long-run resource wealth are available.
- Based on optimality considerations (under restrictive assumptions).
- Preserves resource wealth.
- Provides long-term benchmark for fiscal sustainability.

Cons of PIH-based benchmark
- Incompatible with LIC characteristics (capital scarcity, credit constraints).
- Preserving resource wealth may not be optimal for LICs.
- Is ill-suited to assess investment as, strictly interpreted, the framework is based on theory of consumption.

Pros of broader fiscal sustainability framework
- Based on intertemporal budget constraint.
- Consideration given to growth impact as well as recurrent and replacement costs of additional investment.
- Provides long-term benchmark for fiscal sustainability.

Cons of broader fiscal sustainability framework
- Application is more complex, as it requires estimating interaction with non-resource growth.
- More demanding data requirements and analysis.
- Requires country-specific assessments of the optimal level of net wealth.

### Short- to medium-term fiscal anchors
- Fiscal anchors in resource-rich countries can take the form of:
  - non-resource balance rules, or
  - resource price-based rules (footnote 13).
- Both rule types help manage short- to medium-term demand volatility.
- The non-resource primary balance rule directly ties short/medium-term policy to long-term sustainability benchmarks.
- The choice of anchor may be influenced by the level of resource revenue dependency: higher dependency should increase incentives to shield expenditure plans from total revenue volatility.
- Country experience:
  - Many rules have not been followed or have been abandoned (examples cited: Azerbaijan, Ecuador, Nigeria).
  - Others have been relatively successful owing to strong political support and embedded flexibility (examples cited: Chile, Norway).
- Appendix III in the source provides country examples and compliance information (not reproduced here).

### Fiscal indicators for resource-intensive countries (Box 2)
- Choice of fiscal indicator is critical for fiscal frameworks in resource-dependent countries.
- Key fiscal indicator: non-resource primary balance (primary balance minus (net) resource revenue), preferably scaled to non-resource GDP.
  - Measures underlying fiscal policy stance and government domestic demand.
  - Can be compared against a long-term fiscal sustainability benchmark.
  - Helps delink policy from resource revenue volatility.
  - Can be anchored by a PIH calculation or other macroeconomic concerns.
- Other indicators and practical considerations:
  - Overall (or primary) balance:
    - Common in non-resource countries to limit net financing requirement or assess fiscal vulnerability.
    - Can be procyclical in resource-dependent countries: rising resource revenues can mask fiscal expansion.
    - Provides indication of change in net financial assets and gross financing needs if resource revenue declines.
  - Current balance (excludes public investment from overall balance):
    - Practical drawback: fails to provide a clear anchor for fiscal policy and creates classification incentives between current and capital expenditure.
  - Domestic balance (overall fiscal balance excluding transactions with rest of the world):
    - Excludes resource revenue and import content of government expenditure (investment tends to be import intensive).
    - Can be attractive for scaling up investment expenditure.
    - Practical problem: difficulty measuring import content of government expenditure, creating incentives for creative accounting.
- Note on scaling indicators:
  - Given large volatility of resource GDP, indicators and targets should ideally be expressed in terms of non-resource GDP to avoid forced fiscal adjustments in response to large declines in resource prices (footnote 1 in the source).

### Options for fiscal anchors (continued discussion)
- Non-Resource Primary Balance Rules:
  - PIH-based rules explicitly link to exhaustibility of resource revenue—relevant for countries with a relatively short reserve horizon.
  - Different PIH formulations imply different spending or non-resource balance paths; e.g., a PIH rule keeping spending constant in real terms (Timor-Leste example) provides a more front-loaded spending path than one keeping spending constant relative to non-resource GDP.
- Practical challenges with PIH-based anchors:
  - Spending paths can change dramatically year-to-year if revenue forecasts are volatile, underscoring the importance of strengthening revenue forecasting capacity.
  - The source recommends resource revenue forecasts be prepared bottom-up based on individual projects, with sensitivity analysis for price, cost, and production assumptions (footnote 14).
- Modified PIH for LICs:
  - Standard PIH is inadequate for LICs; a modified PIH can accommodate scaling-up of capital expenditure, allowing a more front-loaded, resource-financed investment profile offset by lower future spending.
  - Such a modified PIH needs a transparent approval procedure for scaled-up capital expenditure and accepts that expenditure paths will be less smoothed but remain anchored within an estimate of long-term sustainable resource revenue use (Figure 3 referenced).
- Finite optimization horizon variant:
  - Limiting the optimization horizon to a finite number of years (bounded annuity rather than a perpetuity) implies resource wealth will be depleted after a given period, leading to more front-loaded public expenditure and necessitating gradual fiscal adjustment later to avoid abrupt falls in the non-resource primary balance (footnote 15).

*Source: Box 1 and Box 2, Fiscal Sustainability Analysis for Resource-Rich Countries (as presented in the supplied content).*

### Box 3. An Example of a Modified PIH with Scaling-Up of Capital Spending

### Box 3. An Example of a Modified PIH with Scaling-Up of Capital Spending

### Modified PIH framework with front-loaded capital spending
- Government front-loads investment spending above the baseline forecasts by 'tI.
- Financing: additional front-loaded capital spending could be financed by “saving” less natural resource revenue during the scaling-up period, implying accumulation of financial assets (A) is lower during the scaling-up period than in the baseline.
- Immediate fiscal effect: higher capital spending directly reduces the non-resource primary balance (NRPB); relative to the baseline, the deficit in the scaling-up period will be larger by the amount of 'tI.
- Intertemporal budget constraint implications:
  - Effect 1: Net wealth ('tW) is lower because the stock of financial assets is lower than in the baseline. The PIH rule ('tt NRPBrW = −) implies higher non-resource primary balances in the future to offset front-loaded spending.
  - Effect 2: Potential growth impact of scaled-up investment. If front-loaded investment increases growth by an extra rate 'γ:
    - Operation and maintenance expenditure (σ) increases, worsening the NRPB.
    - Higher growth leads to higher non-resource tax revenues ('τ), improving the future path of the NRPB.
- Net outcome scenarios:
  - If the “fiscal” return on scaled-up domestic investment ≥ forgone return on financial assets, net wealth after scaling-up could be higher than in the baseline ('W W ≥), so the sustainable non-resource primary deficit could be at least equal to baseline.
  - If net wealth is lower ('W W <), future NRPB would have to be higher (deficits lower) than in the baseline when applying the PIH rule.

### Short- to medium-term non-resource balance targets and approaches
- Rationale: Insulate fiscal policy from resource revenue volatility and manage short-term demand; facilitates preparation of medium-term expenditure plans relative to price-based rules.
- Simple approach:
  - Link non-resource balance (or deficit ceilings) to conservative estimates of resource revenue over the medium term; could incorporate an expenditure scaling-up path.
  - Example cited: Papua New Guinea’s five-year medium-term fiscal strategy sets a ceiling for the non-mineral deficit in line with an estimate of “normal” mineral revenue over that period (plus a fraction of windfall revenues).
- Rigorous approach:
  - Determine non-resource balance targets in line with absorptive capacity; assess fiscal stance against indicators like inflation, the real exchange rate, and interest rates.
  - First approximation: analysis of historical data and empirical linkages between observed non-resource deficits and macro indicators.
  - More sophisticated: macroeconomic model-based scenarios (financial programming or DSGE models).
- Performance note:
  - Mixed outcomes: Norway successful; Timor-Leste tested recently with large scaling-up; Ecuador’s rule abandoned; Papua New Guinea largely followed albeit with volatility when rule expressed in terms of total GDP.

### Resource price-based and “structural” balance rules
- Price-based rules:
  - Rely on smoothed resource revenue and adjusted fiscal targets to delink expenditure from resource price volatility.
  - Deal explicitly with resource price volatility but may ignore exhaustibility and production/regime changes.
  - Commodity reference prices can be formula-based or set by an independent committee (Chile example); formulas can be moving averages of past prices or past spot and futures market prices (Mexico, Trinidad and Tobago).
- Structural balance rules:
  - Chile’s structural balance includes adjustment of non-mineral revenue for the economic cycle; where cycle is not well defined, that adjustment may be ignored (Mongolia example).
- Short-term articulation:
  - Price-based or structural targets can be articulated on short-term considerations; long-term sustainability can be introduced via more ambitious targets (e.g., a “structural” surplus) or floors on overall balance / ceilings on public debt.
- Practical performance:
  - Mixed: cornerstone in Chile, not strictly followed in Nigeria due to political pressure to spend additional revenues.

### Expenditure growth and non-resource current balance rules
- Expenditure growth rule:
  - Limits growth of government spending in nominal or real terms or as percent of non-resource GDP.
  - Desirable when scaling up expenditure with absorption constraints and need for precautionary saving.
  - Advantages: visibility; can relate to economy’s absorption capacity.
  - More effective when complementing an overall-balance rule or a structural rule (Peru example; Mongolia from 2013).
  - Implementation notes:
    - Increase in spending more gradual than simple structural balance; buffers built for volatile revenues.
    - Growth limits should be informed by absorption capacity analysis; higher limits can be set for capital expenditure versus current expenditure.
- Non-resource current balance rule (golden rule/Hartwick rule):
  - Excludes capital spending and resource revenue from fiscal targets.
  - Merits: focus on using resource wealth for physical assets that raise non-resource productivity and growth.
  - Practical problems:
    - Other expenditure (education, health) may also raise potential growth, expanding categories to exclude reduces rule relevance.
    - Special treatment fragments the budget; best practice favors integrated budget frameworks that account for recurrent costs of capital projects.
    - Creates incentives to misclassify recurrent spending as capital and can induce procyclicality during booms.
  - Examples: Equatorial Guinea, Botswana “sustainable budget index”.

### Other considerations for fiscal anchors and scaling-up
- Absorptive capacity and institutional constraints:
  - Pace of scaling-up must consider macro and micro absorption limits to avoid Dutch disease and inefficiencies.
  - Indicators for macro absorption constraints: inflation, congested harbors, blackouts, skill shortages.
  - Micro indicators: quality of government investment process via surveys (PIMI, PEFA).
- Strengthening public investment management:
  - Critical to ensure scaled-up spending yields expected growth benefits: careful project appraisal, improved procurement, and wider public financial management reforms to provide credible medium-term budget orientation.
- Fiscal return measurability:
  - Government fiscal returns from domestic investment depend on user fees or higher tax revenue from growth; in low non-resource tax ratio countries, investment must have very strong growth effects to materially improve NRPB.
- Borrowing and deficit flexibility when scaling up:
  - Gradual increase in non-resource deficit targets recommended where large absorption constraints exist.
  - Structural balance or flexible non-resource deficit rules can include expenditure growth caps; initially set at the non-resource GDP growth rate and gradually increased as constraints ease.
  - Large lumpy projects: consider widening fiscal deficit target temporarily if economically beneficial.
  - Fiscal frameworks can allow some debt accumulation within explicit limits, but borrowing (including collateralization of resource revenue) should be comprehensively assessed as potentially expensive and risky.

### Resource revenue volatility, uncertainty, and precautionary saving
- Design of fiscal anchor must account for resource price and production volatility; part of windfalls should be saved for busts.
- The higher the dependency on resource revenue, the stronger the case for precautionary saving.
- Literature findings vary on the need for precautionary saving depending on volatility and uncertainty.
- Stochastic simulations can explore desirable buffer-stock sizes:
  - Example simulation for Nigeria suggests a precautionary buffer stock of 60 percent of annual oil revenue to be reasonably confident of maintaining a smooth government spending path over three years.
- Alternatives to self-insurance (borrowing, contingent instruments) may be costly relative to fiscal buffers.
- Fiscal anchors can be refined to build precautionary savings:
  - More ambitious price-based/structural targets (e.g., structural surplus).
  - Prudential factor in PIH frameworks by applying larger discount to derive conservative spending and surpluses.
  - Overall balance floors to generate fiscal savings.
- Flexibility vs. credibility:
  - To be credible in uncertainty, fiscal anchors need flexibility without undermining credibility.
  - Practices to consider:
    - Focus on procedural rules rather than fixed numerical targets (Chile example: identify variable and process by which targets determined).
    - Reliance on a “flexible” guideline instead of rigid rule (Timor-Leste, Norway examples).
    - Explicit revision clauses (e.g., targets to be reassessed every four years).

### Role and design of resource funds
- Resource funds: useful tools for macro-fiscal management but not substitutes for fiscal policy or fiscal rules.
- Evidence: empirical studies find no significant differences in fiscal stance between countries with funds with rigid inflow-outflow rules and others; lack of borrowing constraints can undermine fund effectiveness.
- Principle: Sustainable accumulation in a fund should derive from actual fiscal surpluses; funds may be used to pay down public debt instead of accumulating assets.
- Appropriate roles for resource funds:
  - Support implementation of sound fiscal policies (e.g., financing countercyclical policies).
  - Enhance transparency and credibility of fiscal policy by making resource revenues and savings visible.
  - Maximize yield of government financial savings in line with fiscal objectives.
- Integration and governance:
  - Resource funds should be integrated into the budget and should not have authority to spend outside the budget.
  - Avoid creation of “development funds” with spending authority, which fragment the budget and weaken fiscal control; if used for communication reasons, such funds should have no capacity to spend.

### Conclusions and guiding principles
- Fiscal frameworks should reflect country-specific characteristics: revenue dependency, volatility, and resource revenue horizon that may change over time.
- Frameworks should ensure fiscal sustainability via PIH frameworks or stabilizing government net wealth (possibly below current levels).
- Policymakers can choose fiscal anchors that primarily address sustainability (PIH-based) or short-term demand management (price-based or structural balance); country characteristics guide the choice.
- Fiscal frameworks should be sufficiently flexible to enable scaling-up of growth-enhancing expenditure, especially in LICs.
- In countries with large absorption constraints, the pace of scaling-up should be gradual while reinforcing PFM systems and easing supply constraints.
- Volatility and uncertainty of resource revenue are critical; sufficient precautionary fiscal buffers and strong revenue forecasting with medium-term spending plans are essential.
- Credibility and transparency of the fiscal framework can be supported by a well-designed resource fund, but funds cannot substitute for appropriate policy frameworks nor obviate the need to strengthen fiscal management capacity; funds must be fully integrated with the budget and fiscal framework.

*Source: _sdn1204 - Box 3. An Example of a Modified PIH with Scaling-Up of Capital Spending*

### Appendix I. Resource-Dependent Countries: Descriptive Statistics

### Appendix I. Resource-Dependent Countries: Descriptive Statistics

### Overview
- The appendix presents country-level descriptive statistics for resource-dependent countries covering:
  - Resource exports in percent of total exports (avg 2006-10)
  - Resource revenue in percent of total fiscal revenue (avg 2006-10)
  - Commodity
  - Revenue to Total GDP (avg 2006-10)
  - Reserve horizon (R/P ratio)
  - GDP Per Capita PPP Level 2010
  - Development level, HDI 2010
  - Overall PIMI score (0-4)

### Selected country statistics (as reported)
- Algeria (DZA): Oil; Resource exports 98; Resource revenue 73; Revenue to Total GDP 29.7; R/P ratio 35.2; GDP Per Capita PPP Level 6,950; Development level High; Overall PIMI score ...
- Angola (AGO): Oil; Resource exports 95; Resource revenue 78; Revenue to Total GDP 35.0; R/P ratio 20.0; GDP Per Capita PPP Level 5,632; Development level Low; Overall PIMI score ...
- Azerbaijan (AZE): Oil; Resource exports 94; Resource revenue 64; Revenue to Total GDP 25.6; R/P ratio 32.2; GDP Per Capita PPP Level 10,033; Development level High; Overall PIMI score 1.5
- Bahrain (BHR): Oil; Resource exports 81; Resource revenue 82; Revenue to Total GDP 23.1; R/P ratio 16.7; GDP Per Capita PPP Level 26,852; Development level Very high; Overall PIMI score ...
- Bolivia (BOL): Gas; Resource exports 53; Resource revenue 21.3; Revenue to Total GDP 19.5; R/P ratio 4.5; GDP Per Capita PPP Level 4,592; Development level Medium; Overall PIMI score 2.4
- Botswana (BWA): Diamonds; Resource exports 66; Resource revenue 63; Revenue to Total GDP 22.6; R/P ratio 18.6; GDP Per Capita PPP Level 15,489; Development level Medium; Overall PIMI score 2.4
- Brunei Darussalam (BRN): Gas; Resource exports 96; Resource revenue 90; Revenue to Total GDP 45.2; R/P ratio ...; GDP Per Capita PPP Level 48,892; Development level Very high; Overall PIMI score ...
- Cameroon (CMR): Oil; Resource exports 47; Resource revenue 27; Revenue to Total GDP 6.0; R/P ratio ...; GDP Per Capita PPP Level 2,170; Development level Low; Overall PIMI score ...
- Chad (TCD): Oil; Resource exports 89; Resource revenue 67; Revenue to Total GDP 15.2; R/P ratio 33.7; GDP Per Capita PPP Level 1,698; Development level Low; Overall PIMI score 1.0
- Chile (CHL): Copper; Resource exports 53; Resource revenue 23; Revenue to Total GDP 6.2; R/P ratio 27.3; GDP Per Capita PPP Level 15,002; Development level High; Overall PIMI score ...
- Congo, Rep. of (COG): Oil; Resource exports 90; Resource revenue 82; Revenue to Total GDP 32.6; R/P ratio 18.2; GDP Per Capita PPP Level 4,427; Development level Medium; Overall PIMI score 0.5
- Democratic Republic of Congo (ZAR): Minerals & Oil; Resource exports 94; Resource revenue 30; Revenue to Total GDP 3.0; R/P ratio 10.7; GDP Per Capita PPP Level 328; Development level Low; Overall PIMI score ...
- Ecuador (ECU): Oil; Resource exports 55; Resource revenue 24; Revenue to Total GDP 7.4; R/P ratio 34.1; GDP Per Capita PPP Level 7,776; Development level High; Overall PIMI score ...
- Equatorial Guinea (GNQ): Oil; Resource exports 99; Resource revenue 91; Revenue to Total GDP 31.2; R/P ratio 17.1; GDP Per Capita PPP Level 18,143; Development level Medium; Overall PIMI score ...
- Gabon (GAB): Oil; Resource exports 83; Resource revenue 60; Revenue to Total GDP 18.4; R/P ratio 41.2; GDP Per Capita PPP Level 15,021; Development level Medium; Overall PIMI score 1.0
- Guinea (GIN): Mining Products; Resource exports 93; Resource revenue 23; Revenue to Total GDP 3.7; R/P ratio ...; GDP Per Capita PPP Level 1,046; Development level Low; Overall PIMI score 1.1
- Guyana (GUY): Gold & Bauxite; Resource exports 42; Resource revenue 27; Revenue to Total GDP 7.7; R/P ratio ...; GDP Per Capita PPP Level 6,964; Development level Medium; Overall PIMI score ...
- Indonesia (IDN): Oil; Resource exports 10; Resource revenue 23; Revenue to Total GDP 4.5; R/P ratio 27.2; GDP Per Capita PPP Level 4,394; Development level Medium; Overall PIMI score 1.5
- Iran (IRN): Oil; Resource exports 79; Resource revenue 66; Revenue to Total GDP 17.3; R/P ratio 134.9; GDP Per Capita PPP Level 10,865; Development level High; Overall PIMI score ...
- Iraq (IRQ): Oil; Resource exports 99; Resource revenue 84; Revenue to Total GDP 69.2; R/P ratio 150.0; GDP Per Capita PPP Level 3,538; Development level ......; Overall PIMI score ...
- Kazakhstan (KAZ): Oil; Resource exports 60; Resource revenue 40; Revenue to Total GDP 10.5; R/P ratio 60.3; GDP Per Capita PPP Level 12,603; Development level High; Overall PIMI score 2.4
- Kuwait (KWT): Oil; Resource exports 93; Resource revenue 95; Revenue to Total GDP 61.9; R/P ratio 114.2; GDP Per Capita PPP Level 37,849; Development level High; Overall PIMI score ...
- Libya (LBY): Oil; Resource exports 97; Resource revenue 89; Revenue to Total GDP 55.7; R/P ratio 79.8; GDP Per Capita PPP Level 13,805; Development level High; Overall PIMI score ...
- Mali (MLI): Gold; Resource exports 75; Resource revenue 13; Revenue to Total GDP 3.2; R/P ratio ...; GDP Per Capita PPP Level 1,252; Development level Low; Overall PIMI score 2.2
- Malaysia (MYS): Oil; Resource exports 83; Resource revenue 78; Revenue to Total GDP 23.0; R/P ratio 14.6; GDP Per Capita PPP Level 14,670; Development level High; Overall PIMI score ...
- Mauritania (MRT): Iron Ore; Resource exports 24; Resource revenue 22; Revenue to Total GDP 5.7; R/P ratio 63.6; GDP Per Capita PPP Level 2,093; Development level Low; Overall PIMI score 1.7
- Mexico (MEX): Oil; Resource exports 15; Resource revenue 36; Revenue to Total GDP 8.0; R/P ratio 10.1; GDP Per Capita PPP Level 14,430; Development level High; Overall PIMI score ...
- Mongolia (MNG): Copper; Resource exports 81; Resource revenue 29; Revenue to Total GDP 10.0; R/P ratio ...; GDP Per Capita PPP Level 4,006; Development level Medium; Overall PIMI score 1.7
- Nigeria (NGA): Oil; Resource exports 97; Resource revenue 76; Revenue to Total GDP 21.7; R/P ratio 65.6; GDP Per Capita PPP Level 2,422; Development level Low; Overall PIMI score 1.1
- Norway (NOR): Oil; Resource exports 62; Resource revenue 29; Revenue to Total GDP 15.3; R/P ratio 13.6; GDP Per Capita PPP Level 52,013; Development level Very high; Overall PIMI score ...
- Oman (OMN): Oil; Resource exports 73; Resource revenue 83; Revenue to Total GDP 37.0; R/P ratio 20.3; GDP Per Capita PPP Level 25,439; Development level ......; Overall PIMI score ...
- Papua New Guinea (PNG): Minerals & Petroleum; Resource exports 80; Resource revenue 32; Revenue to Total GDP 9.6; R/P ratio 20 (gold); GDP Per Capita PPP Level 2,300; Development level Low; Overall PIMI score ...
- Peru (PER): Minerals; Resource exports 81; Resource revenue 93; Revenue to Total GDP 8.3; R/P ratio 5.0; GDP Per Capita PPP Level 9,330; Development level High; Overall PIMI score 2.6
- Qatar (QAT): Gas; Resource exports 88; Resource revenue 58; Revenue to Total GDP 22.6; R/P ratio 143.7; GDP Per Capita PPP Level 88,559; Development level Very high; Overall PIMI score ...
- Russia (RUS): Oil; Resource exports 50; Resource revenue 29; Revenue to Total GDP 11.0; R/P ratio 48.8; GDP Per Capita PPP Level 15,837; Development level High; Overall PIMI score ...
- Saudi Arabia (SAU): Oil; Resource exports 87; Resource revenue 79; Revenue to Total GDP 42.0; R/P ratio 75.5; GDP Per Capita PPP Level 23,826; Development level High; Overall PIMI score ...
- Sudan (SDN): Oil; Resource exports 97; Resource revenue 55; Revenue to Total GDP 10.8; R/P ratio 37.8; GDP Per Capita PPP Level 2,492; Development level Low; Overall PIMI score 1.1
- Suriname (SUR): Minerals; Resource exports 11; Resource revenue 29; Revenue to Total GDP 8.3; R/P ratio ...; GDP Per Capita PPP Level 8,924; Development level Medium; Overall PIMI score ...
- Syrian Arab Republic (SYR): Oil; Resource exports 36; Resource revenue 25; Revenue to Total GDP 5.7; R/P ratio 21.9; GDP Per Capita PPP Level 5,208; Development level Medium; Overall PIMI score ...
- Timor-Leste (TLS): Oil; Resource exports 99; Resource revenue 70; Revenue to Total GDP 60.9; R/P ratio ...; GDP Per Capita PPP Level 2,861; Development level Medium; Overall PIMI score ...
- Trinidad and Tobago (TTO): Gas; Resource exports 38; Resource revenue 49; Revenue to Total GDP 17.4; R/P ratio 9.7; GDP Per Capita PPP Level ...; Development level High; Overall PIMI score 1.1
- Turkmenistan (TKM): Oil; Resource exports 91; Resource revenue 54; Revenue to Total GDP 10.6; R/P ratio 149.6; GDP Per Capita PPP Level 6,785; Development level Medium; Overall PIMI score ...
- United Arab Emirates (ARE): Oil; Resource exports 41; Resource revenue 76; Revenue to Total GDP 24.3; R/P ratio 100.0; GDP Per Capita PPP Level 48,821; Development level Very high; Overall PIMI score ...
- Venezuela (VEN): Oil; Resource exports 93; Resource revenue 58; Revenue to Total GDP 18.7; R/P ratio 226.7; GDP Per Capita PPP Level 11,829; Development level High; Overall PIMI score ...
- Vietnam (VNM): Oil; Resource exports 14; Resource revenue 22; Revenue to Total GDP 5.7; R/P ratio 43.1; GDP Per Capita PPP Level 3,134; Development level Medium; Overall PIMI score ...
- Yemen (YEM): Oil; Resource exports 82; Resource revenue 68; Revenue to Total GDP 22.0; R/P ratio 42.8; GDP Per Capita PPP Level 2,598; Development level Low; Overall PIMI score 0.8
- Zambia (ZMB): Copper; Resource exports 72; Resource revenue 40.8; Revenue to Total GDP 26.0; R/P ratio ...; GDP Per Capita PPP Level 1,512; Development level Low; Overall PIMI score 1.9

Sources reported for the statistical table: IMF staff estimates; BP 2011 Statistical Review of World Energy; UNDP Human Development Index; Gupta et al., 2011.

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### Appendix II. Survey on IMF Advice to Resource-Dependent Countries

### Objective and scope
- Survey objective: check the nature of IMF staff policy advice on resource management, in particular reliance on PIH models and other fiscal frameworks, indicators, and fiscal rules.
- Sample: 39 staff reports from 17 countries over 2004–11, covering LIC, MIC, emerging-, and advanced-resource dependent countries from different regions.

### Main findings
- In most surveyed countries, the IMF did not advocate the PIH model as the main policy target or fiscal rule.
- Eight out of the seventeen surveyed countries discussed the PIH model.
- In only six countries (Azerbaijan, Gabon, Norway, Republic of Congo, Russia, and Timor-Leste) the (non-oil) fiscal indicator derived from a PIH model is used as an actual target for a program or surveillance.
- In other countries, policy advice emphasized different fiscal indicators not based on PIH considerations, such as price-based rules.
- In most country reports surveyed, medium-term fiscal frameworks are suggested by staff.

### Appendix Table 1 (survey indicators summary)
- The table records presence of the following elements for each country: Included in the Fiscal Framework; Indicator of Long-Term Sustainability; Use of Permanent Income Hypothesis (PIH) Model; Use of Price-Based Fiscal Rule; Main Fiscal Indicator is the Non-Resource Balance; Use of Medium-Term Framework.
- Country summary markers (X or multiple Xs) as reported for:
  - Angola: Included in the Fiscal Framework XXX
  - Azerbaijan: Included in the Fiscal Framework XXX
  - Cameroon: Included in the Fiscal Framework XX
  - Chad: Included in the Fiscal Framework XXX
  - Chile: Included in the Fiscal Framework XX
  - Congo, Rep. of: Included in the Fiscal Framework XXXX
  - Equatorial Guinea: Included in the Fiscal Framework XXX
  - Gabon: Included in the Fiscal Framework XXX
  - Ghana: Included in the Fiscal Framework X
  - Nigeria: Included in the Fiscal Framework XXXX
  - Norway: Included in the Fiscal Framework XXX
  - Papua New Guinea: Included in the Fiscal Framework XX
  - Peru: Included in the Fiscal Framework X
  - Russia: Included in the Fiscal Framework XXX
  - Timor-Leste: Included in the Fiscal Framework XXXX
  - Trinidad & Tobago: Included in the Fiscal Framework XXXX
  - Venezuela: Included in the Fiscal Framework XX

Note: The appendix notes that in some countries, the use of the PIH changed during the reviewed 2004–11 period, so the current use of the PIH may differ.

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### Appendix III. Elements of Fiscal Frameworks in Selected Resource Intensive Countries

### Purpose
- Describes rules, PIH frameworks, non-PIH frameworks, and resource funds across selected resource-intensive countries and provides short descriptions of each country’s framework.

### Country examples and framework elements
- Azerbaijan
  - Rule: X
  - PIH Framework: R
  - Description: A non-oil balance guideline (2004) consistent with constant real consumption out of oil wealth. Never observed. More recently reliance on ad-hoc balanced budget oil price. Complemented by state oil fund.
- Chile
  - Rule: X
  - PIH Framework: F
  - Description: Structural balance guideline (institutionalized in 2006 fiscal responsibility law). Adjustment by long-term price of copper and molybdenum (10-year forecast) as determined by an independent committee. Targets have been changed over time. Supported by two funds (stabilization and savings).
- Ecuador
  - Rule: X
  - PIH Framework: R
  - Description: Various rules (e.g., non-oil balance, expenditure growth) that were mostly not observed. More recent rule states that current spending cannot exceed permanent revenue (a sort of “golden rule”). Oil funds abolished in 2008.
- Equatorial Guinea
  - Rule: X
  - PIH Framework: R
  - Description: Guideline establishing that current expenditures should be limited to non-oil revenue has led to very high capital expenditure levels. CEMAC convergence criteria include various fiscal targets (e.g., a non-oil balance target). It has a fund for future generations.
- Ghana
  - Rule: (none marked)
  - PIH Framework: R
  - Description: A recent petroleum revenue management framework built around a stabilization fund and a heritage fund. Benchmark oil revenue is calculated at a 7-year moving average, with 70 percent used to finance the budget. Remaining revenue allocated in fixed proportions to the funds. No fiscal anchor limiting budget deficit.
- Mongolia
  - Rule: X
  - PIH Framework: R
  - Description: A ceiling on the structural deficit with structural mineral revenues estimated using a 16-year moving average of mineral prices. Combined with a ceiling on expenditure growth defined by the non-mineral GDP growth rate. Structural balance target can be changed every four years. Flows to a stability fund linked to difference between actual and structural revenues. This framework will start in 2013.
- Nigeria
  - Rule: X
  - PIH Framework: R
  - Description: 3 percent of GDP deficit ceiling for federal govt. computed at budget oil price (not strictly followed). Budget oil price set every year in political negotiations, including with sub-national governments. Excess crude account receives “windfall” revenues; ad-hoc withdrawals.
- Norway
  - Rule: X
  - PIH Framework: F
  - Description: “Bird-in-hand” fiscal guideline: the cyclically adjusted non-oil central government deficit as 4 percent (the expected long-run real rate of return) of the SWF assets. Guidelines are flexible: temporary deviations permitted over business cycle or if large changes in SWF value. Very strong political consensus.
- Papua New Guinea (PNG)
  - Rule: X
  - PIH Framework: (not marked)
  - Description: 5-year medium-term fiscal strategy that sets a ceiling to the non-mineral deficit in line with “normal” mineral revenue. A portion of “windfall” mineral revenue (70 percent) can be spent up to a non-mineral deficit ceiling of 8 percent of GDP. It was largely followed, but volatile real expenditure growth due to swings in total GDP.
- Russia
  - Rule: X
  - PIH Framework: R
  - Description: The budget code includes a long-term nonoil deficit target of 4.7 percent of GDP that was suspended in 2009. Annual budgets underpinned by rolling three-year medium-term fiscal frameworks. Two oil funds (stabilization and savings).
- Timor-Leste
  - Rule: X
  - PIH Framework: F
  - Description: Fiscal guideline based on PIH framework (constant in real terms). Non-oil balance set in line with estimated sustainable income (ESI), which is calculated annually as 3 percent of the sum of the petroleum fund balance and the present value of expected future petroleum receipts. Deficits can exceed the ESI if properly justified and approved by Parliament. More recently, government has scaled up public investment so that total spending amounts to more than twice the level of the ESI.

Notes:
- Resource funds can be an account or a statutory legal entity.
- R = contingent (i.e., linked to threshold values) or revenue-share (i.e., flows in proportion to total revenue) funds.
- F = flexible (i.e., financing, linked to the overall fiscal position) funds.

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*Source: Appendix I–III, “Resource-Dependent Countries: Descriptive Statistics” and related appendices, IMF staff estimates and surveys as presented in the supplied content.*

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