IMF Survey: Resource-rich Countries Can Seize Opportunities, IMF

IMF News, October 10, 2012

Source details

Canonical URL: IMF Survey: Resource-rich Countries Can Seize Opportunities, IMF

Revenues from extractive industries account for over half of government revenues in many petroleum-rich countries, and for over 20 percent in mining countries.
About one-third of IMF member countries find, or could find, resource revenues critical to their economies’ macroeconomic stability—especially with large numbers of recent discoveries and planned oil, gas, and mining developments.
Given the volatile nature of natural resource revenue, volatility of government expenditure is over 60 percent higher in these countries than in their comparators.
Sound macroeconomic management of natural resources can contribute significantly to these countries’ economic development.

The first step: creating the fiscal revenue from natural resources through well-designed and implemented fiscal regimes for natural resources.
The next step: putting in place macroeconomic policy frameworks that ensure resource revenue is well-used and supports transforming subsoil assets into other productive assets.
Revenue objectives are the main concern when designing fiscal regimes for the extractive industries, but trade-offs include:
- Generating employment in related activities.
- Addressing environmental impacts.
- Capturing substantial rents—returns in excess of the minimum required by the investor—that make extractive industries attractive as a revenue source.
Fiscal regimes vary greatly; the IMF works under tax and royalty, production sharing, or state participation frameworks—aiming for design efficiency in each case.
Distinct characteristics of resource-rich developing countries—low per capita incomes, scarcity of domestic capital, and limited access to international capital markets—require distinct policies.

Priorities to address policy framework gaps include:
- Ensuring that fiscal policy frameworks and institutions lock in high rates of savings from resource revenues;
- Strengthening overall institutions and building capacity to make good quality public investment; and
- Delinking expenditure from volatile revenue in the short to medium term.
The IMF recommends practical short-term fiscal rules (price-based, non-resource balance, or expenditure growth rules for example) to smooth revenue volatility for countries with relatively long reserve horizons.

The study provides a framework for assessing the long-term sustainability of fiscal policies that accounts for depleting resource revenues and the growth and revenue-enhancing impact of public investment.
A model-based “sustainable investment tool” is recommended to analyze the fiscal and macroeconomic implications of savings/investment scaling up scenarios.
Fiscal indicators for inclusion in IMF country reports are proposed to measure how much of a nonrenewable resource is being consumed, and how much of it is being invested—intended to reorient policy discussions and aid communication with citizens.
The paper offers a new tool to compare actual current account balances to optimal “norms” in these countries, complementary to other IMF methodologies for assessing external sustainability.
Pilot studies will be conducted in a number of these countries to gauge how to adapt the new frameworks to country-specific circumstances, along with efforts to close information gaps and collaborate further with the World Bank.
Practical guidance is provided, along with an excel template, for designing short-term fiscal rules.

IMF policy advice and technical assistance in the field have expanded in recent years—driven by demand from the countries and supported by more donor financing.
“These papers make an important contribution to the Fund’s policy toolkit to help resource-rich developing countries better realize the resource revenue potential, and soundly manage and use these revenues,” said IMF Deputy Managing Director Min Zhu.
The IMF intends to focus bilateral surveillance and technical assistance in these economies on effectively managing natural resource wealth to support sustainable economic development.

IMF Survey online — October 10, 2012