Fiscal Analysis of Resource Industries, FARI

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The Fiscal Affairs Department (FAD) uses the Fiscal Analysis of Resource Industries (FARI) framework to evaluate fiscal regimes for extractive industries (EI) with economic and financial analysis at the project level.
FARI is a simple Excel-based, discounted cash flow (DCF) model set up to reflect tax accounting rules and specific tax payments to the government.
FARI is used in advisory and capacity development work on fiscal regime design, revenue forecasting and management (including quantification of fiscal rules), integration in country macroeconomic frameworks, and revenue risk assessments.
The IMF published a Technical Note on the FARI methodology and the simplified FARI model in 2016. Updated simplified models were published in 2021 in English, French and Spanish. An IMF online training course Macroeconomic Management in Resource-Rich Countries (MRCx) includes a FARI module.
Cash Flow Analysis of Fiscal Regimes for Extractive Industries (2024) is listed among related analytical materials.

The lifecycle of a resource project (mining and petroleum) is divided into four main phases:
- (i) exploration
- (ii) development
- (iii) production
- (iv) mine closure or field decommissioning
Model inputs:
- fiscal regime parameters
- annual project costs and production volumes
- economic assumptions (prices, inflation, interest and discount rates)
- financing assumptions
Model operation:
- calculations are done on an annual basis (adaptable to shorter intervals if necessary)
- starts with project net cash flows before fiscal impositions
- calculates each fiscal payment according to fiscal regime parameters and aggregates them into total government revenue
- results are used to estimate indicators for fiscal regime evaluation

Tax/Royalty regimes (commonly found in mining):
- components often include taxes on production (“royalties”), corporate income tax (CIT), and sometimes additional rent or profits taxes (variable income tax, tax surcharge on cash flows, windfall taxes).
Production Sharing Systems (PSC) for petroleum:
- government retains ownership of the resource; investor acts as “contractor” developing the resource at its own risk
- contractor receives a share of production: part as “cost petroleum” (to recover costs), part as “profit petroleum” (payment for work)
- profit petroleum is divided between government and contractor according to production or profitability indicators
- if discovery is unsuccessful, the contractor receives nothing
Time profile of government revenue:
- royalties: early and stable receipts, usually relatively modest
- rent-related taxes: triggered later, more responsive to increases in profitability
- FARI estimates both net present value (NPV) of total government revenue and annual revenue flows

Investor-focused indicators used by FAD:
- post-tax NPV of the project
- post-tax internal rate of return (IRR)
- payback period
- breakeven price
Government-focused indicators used by FAD:
- average effective tax rate (AETR), a measure of “government take”
- marginal effective tax rate (METR)
- progressivity of the fiscal regime
International and cross-scenario comparisons:
- FARI compares fiscal regimes on AETR, METR, and progressivity
- FARI assumes other factors remain constant; comparisons examine properties of fiscal regimes as packaged in different countries rather than determining actual government take or investor returns
- model assumptions include full efficiency of revenue collection, no international tax planning, and no ring fencing issues
- results should be interpreted with care given these caveats

Revenue forecasting:
- where fiscal terms, historical data and reliable projections exist, FARI can estimate timing and amount of government receipts from EI projects
- particularly useful for countries with resource sectors concentrated in a few large-scale projects
- outputs can feed into macro-fiscal models to inform projections for resource revenue, exports, prices, portfolio and foreign direct investment, interest and debt amortization, and production volumes
Fiscal regime design:
- FAD uses FARI metrics to compare existing regimes with alternative regimes to inform policy decisions
Tax administration and revenue gap analysis:
- backward-looking analysis using historic data and actual project outcomes allows reconciliation between model-predicted and actually collected EI revenues by project and fiscal instrument
- benefits:
- identify possible sources of revenue leakage (accounting manipulation, abusive tax planning)
- set realistic tax collection targets and monitor performance
- calibrate and improve the FARI model’s revenue forecasting power