IMF Launches Trust Fund to Help Countries Manage Their Natural Resource WealthPress Release No. 10/497
December 16, 2010
The International Monetary Fund (IMF) is launching a multi-donor trust fund to finance Technical Assistance on effectively managing natural resource wealth. The so-called Topical Trust Fund on Managing Natural Resource Wealth starts in May 2011 and will provide about US$25 million over five years to scale up technical assistance to low-income and lower-middle-income countries endowed with oil, gas, and minerals to help them deal with the associated economic policy challenges.
A pledging session for this trust fund was held today in the IMF’s headquarters in Washington D.C. The Netherlands, Norway, and Switzerland have already confirmed their contributions for the new trust fund, with the latter two as lead donors. Together they will provide about half of the funding. Discussions are underway with several other donors, including Australia and the European Union, on possible contributions.
“The number of developing countries with substantial revenues from oil, gas, and minerals is growing rapidly. This provides an important opportunity for these countries to boost sustainable development and make inroads into poverty,” Murilo Portugal, IMF Deputy Managing Director, said. “What often stands in the way though is the infamous resource curse: many resource-rich countries fail to realize the full development potential of their wealth. The trust fund will help build macroeconomic policy capacities so that countries can avoid this curse. It will assist countries to get a fair share of their natural resource wealth, and invest and spend it wisely. It will also help create a stable macroeconomic environment for exploration and exploitation of natural resources, so that access to those resources becomes more secure, as well as more socially responsible, generating a substantial benefit to the world community.”
Switzerland intends to make a contribution of US$5 million. Mr. Jerome Duperrut, representing the Swiss State Secretariat for Economic Affairs (SECO), said at the pledging session: “This Trust Fund is ideally placed to deliver on a large scale the necessary technical assistance to allow resource-rich countries to mobilize domestic resources for ensuring a sustainable socio-economic development and reducing dependence to official development aid.”
The Netherlands is contributing €1.4 million (about US$1.8 million). Ms. Ester Barendregt of the Netherlands Ministry of Foreign Affairs told the pledging session: “The combination of focused technical assistance and the expertise of the IMF are important reasons for the Netherlands to take part. The technical assistance provided through this trust fund will support countries to become economically self-sustaining.”
Today’s pledging session followed a design meeting with key donors in February 2010, hosted by the Norwegian Agency for Development Cooperation (Norad), which subsequently committed NKR 30 million (US$5 million) to the trust fund at a signing ceremony in Oslo on December 6, 2010. “Norad’s early support for this trust fund, building on the international recognition of Norad’s successful Oil for Development initiative, has been instrumental in getting it off the ground,” said Mr. Portugal, who signed the agreement in Oslo for the IMF.
“The Managing Natural Resource Wealth Trust Fund’s program is central to the capacity-building that Norad aims to promote in resource-rich countries through Oil for Development and through Norad’s other tax-related activities in this field,” said Ms.Villa Kulild, Norad’s Director General. “Norad is pleased to bring its own experience into this cooperative effort and to take an active role in the steering of the trust fund.”
This trust fund will concentrate on capacity building in five areas:
• extractive industries fiscal regime;
• extractive industries revenue administration;
• fiscal policies and public financial management specific to resource-rich countries;
• natural-resources-related financial asset and liability management; and
• statistics for natural resources.
The trust fund will serve 15-20 countries from a group of 50 eligible countries that have substantial current or prospective extractive industry revenue. Country commitment to reform will be a key selection criterion. Activities under the trust fund on managing natural resource wealth will complement those of other international institutions, and support the Extractive Industries Transparency Initiative (EITI). This trust fund will also be an effective vehicle for coordinating donors’ capacity building initiatives in managing natural resource wealth.
Countries endowed with oil, gas, and minerals face great policy challenges due to the enclave nature of these extractive industries, the non-renewable character of these resources and the large rent income usually associated with them. National administrations are often weak, laws and regulations defective, and policies inadequate. Moreover, the overall governance environment is often poor, compounded by a tendency toward secrecy in natural resource matters. As a result, countries often do not receive fair compensation for their resources, and their spending does not produce the desired benefits.
The IMF has a strong track record in supporting the management of natural resource wealth thanks to its specialized expertise and unique ability to integrate policy, administrative and legislative dimensions. It is also a standard setter in fiscal transparency, and has worked with Sovereign Wealth Funds to produce the Santiago principles.
Demand for the IMF’s technical assistance is rising in light of the global economic and financial crisis, but also because countries are seeking to strengthen their institutions. At the same time, the Fund is moving forward with a broad range of measures to respond more effectively to its members’ needs to deal with emerging challenges of the global economy. To meet this rising demand as well as better coordinate assistance delivery, the IMF seeks to strengthen its partnerships with donors by engaging them on a broader, longer-term, and more strategic basis.
As a part of these efforts, the IMF is enlarging and expanding its Regional Technical Assistance Centers. It now has three centers in Africa, plus centers in the Pacific, Middle East, and Central America and the Caribbean. Complementing the regional perspective of the Regional centers, the topical trust funds provide technical assistance globally on specialized topics. A successful topical trust fund on Anti-Money Laundering/Combating the Financing of Terrorism was launched in May 2009 (see Press Release 09/108). In addition to the new trust fund on Managing Natural Resource Wealth, the IMF will launch another on Tax Policy and Administration, also in May 2011. Responding to the recent crisis, further topical trust funds are envisaged, including on debt management, training in Africa and financial statistics.