Fiscal Management in Resource-Rich Countries: Essentials for Economists, Public Finance Professionals, and Policy Makers

by Rolando Ossowski, Havard Halland

Overview

The extractive industries (EI) sector occupies an outsize space in the economies of many developing countries. Policy makers, economists, and public finance professionals working in such countries are frequently confronted with issues that require an in-depth understanding of the sector, its economics, governance, and policy challenges, as well as the implications of natural resource wealth for fiscal and public financial management. The objective of the two-volume Essentials for Economists, Public Finance Professionals, and Policy Makers, published in the World Bank Studies series, is to provide a concise overview of the EI-related topics these professionals are likely to encounter. This second volume, Fiscal Management in Resource-Rich Countries, addresses critical fiscal challenges typically associated with large revenue flows from the EI sector. The volume discusses fiscal policy across four related dimensions: short-run stabilization, the management of fiscal risks and vulnerabilities, the promotion of long-term sustainability, and the importance of good public financial management and public investment management systems. The volume subsequently examines several institutional mechanisms used to aid fiscal management, including medium-term expenditure frameworks, resource funds, fiscal rules, and fiscal councils. The volume also discusses the earmarking of revenue, resource revenue projections as applied to the government budget, and fiscal transparency, and outlines several fiscal indicators used to assess the fiscal stance of resource-rich countries. The authors hope that economists, public finance professionals, and policy makers working in resource-rich countries—including decision makers in ministries of finance, international organizations, and other relevant entities—will find the volume useful to their understanding and analysis of fiscal management in resource-rich countries.

Product Details

ISBN-13:	9781464804953
Publisher:	World Bank Publications
Publication date:	06/28/2016
Series:	World Bank Studies
Pages:	164
Product dimensions:	7.01(w) x 10.00(h) x 0.35(d)

Table of Contents

Acknowledgments ix

About the Authors xi

Overview xiii

Abbreviations xxi

Introduction 1

Part I The Challenges Posed by Resource Revenues 5

Chapter 1 What Complicates Fiscal Management in Resource-Rich Countries? 7

Notes 9

Part II Fiscal Policy, Stabilization, Sustainability, and Growth 11

Chapter 2 Fiscal Policy and Short-Run Stabilization 13

Macroeconomic and Fiscal Stability 13

Cyclicality of fiscal Policy in Resource-Rich Countries 15

Coordination with Monetary Policy and the Dilemmas of Sterilization 18

Resource Revenues and Fiscal Federalism 19

Notes 20

Chapter 3 Managing Fiscal Risks and Vulnerabilities 23

Fiscal Risks 23

Resource Revenue Dependence and General Fiscal Risks 24

Prudent Fiscal Policies as a Pro-Poor Strategy 28

Resource Dependence and Specific Fiscal Risks 29

Notes 30

Chapter 4 Promoting Sustainability 31

Fiscal Sustainability Analysis in Resource-Rich Countries 32

Adjusted Net Saving Models 35

Notes 36

Chapter 5 Public Financial Management, Public: Investment Management, and Fiscal Transparency 37

Public Financial Management Systems and Governance 37

Public Investment Management Systems 38

Capacity Issues in New and Prospective Resource Producers 42

Fiscal Transparency 43

Notes 44

Part 3 Special Fiscal institutions in Resource-Rich Countries 45

Chapter 6 Medium-Term Expenditure Frameworks 47

Medium-Term Expenditure Frameworks and Fiscal Risks 49

Medium-Term Expenditure Frameworks and Long-Term Perspectives for Fiscal Policy 50

Factors for the Success of Medium-Term Expenditure

Frameworks 52

Note 53

Chapter 7 Fiscal Rules and Fiscal Councils 55

Fiscal Rules 55

Suggestions for Fiscal Rules 60

Fiscal Councils and Independent Fiscal Institutions 64

Some Prerequisites for Fiscal Councils in Resource-Rich Countries 67

Notes 67

Chapter 8 Resource Funds 69

Stabilization Funds, Savings Funds, and Financing Funds 70

Domestic Operations of Resource Funds 78

Institutional Arrangements for the Fund 86

Governance, Transparency, and Accountability 88

Suggestions for Resource Fund Design 90

Notes 91

Chapter 9 Revenue Earmarking 93

Chapter 10 The Resource Price, or Revenue, in the Budget 99

Suggestions for the Resource Price or Revenue Used in Budgets 101

Appendix A Indicators for Fiscal Analysis in Resource-Rich Countries 103

Notes 106

Appendix B Methodological Issues in the Assessment of Fiscal Policy Cyclicality in Resource-Rich Countries 107

Notes 110

Appendix C Chile's Structural Balance Fiscal Guideline 111

Notes 113

Appendix D Direct Distribution of Resource Rents to Citizens 115

Notes 118

Appendix E Generally Accepted Principles and Practices of a Sovereign Wealth Fund: The Santiago Principles 119

Note 122

Appendix F The International Monetary Fund's Guide to Resource Revenue Transparency: Summary of Good Fiscal Transparency Practices for Resource Revenue Management 123

Clarity of Roles and Responsibilities 123

Open Budget Processes 124

Public Availability of Information 125

Assurances of Integrity 126

Note 126

References 127

Boxes

3.1 Fiscal Risk Analysis in Resource-Rich Countries 27

4.1 Fiscal Frameworks and Sustain ability in Resource-Rich Countries: Examples of World Bank Advice 33

5.1 The Sustainable Investing Approach 42

6.1 Medium-Term Expenditure Frameworks and Fiscal Risk and Long-Term Analyses in Resource-Rich Countries 51

7.1 Norway's Integrated Fiscal Framework: The Fiscal Guideline 56

7.2 Fiscal Rules in Resource-Rich Countries: Econometric Evidence on Fiscal Impact 59

7.3 Fiscal Councils in Resource-Rich Countries 66