Managing the Oil Revenue Boom : The Role of Fiscal Institutions

Mauricio Villafuerte, Rolando Ossowski, Theo Thomas, and Paulo Medas

• Publisher: INTERNATIONAL MONETARY FUND
• Year: 2008
• eBook ISBN: 9781589067189

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Contents

Abbreviations and Acronyms

Preface

Executive Summary

I. Introduction

II. The Recent Oil Boom

Fiscal Policy Responses to the Recent Oil Boom Through 2005

Government Effectiveness, Sustainability, and Vulnerability Issues

III. Special Fiscal Institutions and the Management of Oil Revenue—Recent International Experience

Oil Funds

Fiscal Rules, Fiscal Guidelines, and Fiscal Responsibility Legislation

Budgetary Oil Price

IV. Quantitative Assessment of the Impact of Fiscal Institutions on Fiscal Outcomes

Non-Oil Primary Balance

Public Spending

V. A Framework for Strengthening Fiscal Institutions in Oil-Producing Countries

Institutions, PFM Systems, and Medium-Term Frameworks

The Role for SFIs Within Broader Institutional Reforms

Appendices

I. Expenditure Patterns in Oil-Producing Countries, 1999–2005

II. Sustainable Fiscal Benchmarks—Key Assumptions and Further Considerations

III. Objectives and Design Features of Fiscal Institutions in the Sample of Oil-Producing Countries

IV. Econometric Analysis of the Impact of Fiscal Institutions on Fiscal Outcomes

References

Boxes

1. The Recent Oil Boom and Previous Oil Shocks

2. Botswana and Chile: Experiences with Fiscal Rules

3. Using Multiyear Fiscal Policy and Planning Frameworks

Tables

3.1. Oil Funds: Gross Financial Assets

4.1. Dependent Variable: Non-Oil Primary Balance

4.2. Dependent Variable: Expenditures

4.3. Dependent Variable: Ratio of the Change in Expenditure to the Change in Oil Revenue

A1.1. Government Expenditures in Selected Oil-Producing Countries

A3.1. Features of Fiscal Responsibility Legislation and Fiscal Rules

A3.2. Features of Oil Funds

Figures

2.1. Cumulative Change in the Non-Oil Primary Deficit Relative to Additional Oil Revenue, 2000–05

2.2. Expenditure Growth and Sustainability Analysis

2.3. Oil Price Projections

3.1. Average Budget and Actual Oil Reference Prices for Selected Oil-Producing Countries

The following conventions are used in this publication:

• In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
• An en dash (–) between years or months (for example, 2005–06 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).
• “Billion” means a thousand million; “trillion” means a thousand billion.
• “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

Appendix I Expenditure Patterns in Oil-Producing Countries, 1999–2005

Table A1.1. Government Expenditures in Selected Oil-Producing Countries

(As a share of non-oil GDP, unless otherwise noted)

Sources: IMF staff reports and staff estimates.

¹ Excluding two large outliers (Angola and Equatorial Guinea).

² Lower-income countries are those defined by the World Bank as low-income or lower-middle-income countries. Higher-income countries are those defined by the World Bank as high-income or upper-middle-income countries (i.e., 2005 gross national income (GNI) per capita above $3,465).

³ Excludes Kazakhstan, Russia, and Timor-Leste, for which 1999 data are not available.

⁴ For Kazakhstan, Russia, and Timor-Leste, the base year is 2000.

⁵ Includes extrabudgetary funds when information is available.

⁶ Based on 12 countries with available data: Algeria, Azerbaijan, Cameroon, Chad, the Republic of Congo, Gabon, Indonesia, Nigeria, Saudi Arabia, Sudan, the United Arab Emirates, and the Republic of Yemen.

Appendix II Sustainable Fiscal Benchmarks—Key Assumptions and Further Considerations

Key Assumptions

The sustainable fiscal benchmark is based on a standard theoretical approach linked to the permanent income hypothesis (PIH) used to determine a sustainable fiscal policy for oil-producing countries. It is defined as the (permanent) annual non-oil primary deficit derived from government net wealth, which is the present value of projected future oil revenues plus the value of net government financial assets.¹ IMF teams have increasingly applied similar analytical tools to oil-producing countries, with various intertemporal welfare criteria and country-specific assumptions. In this paper, a standardized and simple approach to estimate the sustainable benchmark has been applied to the whole sample to facilitate comparability.

Constructing a sustainability benchmark for oil-producing countries inclusive of estimated oil wealth depends on key assumptions in a similar way to the debt sustainability analysis (DSA) for other countries. In oil-producing countries, the analysis makes explicit a number of sensitive intertemporal welfare issues. Similar judgments about intertemporal welfare choices are made in the DSA for other countries, but are usually not made explicit. The following key assumptions were made:

• Estimates of proven oil reserves were taken from British Petroleum (2005). This report inc...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Abbreviations and Acronyms
• Preface
• Executive Summary
• I. Introduction
• II. The Recent Oil Boom
• III. Special Fiscal Institutions and the Management of Oil Revenue—Recent International Experience
• IV. Quantitative Assessment of the Impact of Fiscal Institutions on Fiscal Outcomes
• V. A Framework for Strengthening Fiscal Institutions in Oil-Producing Countries
• Appendices
• References
• Boxes
• Footnotes