March 26, 2013

Precept 7 states that resource revenues must foster continued high levels of domestic investment if those revenues are to promote sustainable and inclusive economic growth. This introduces the question of how those resource revenues ought to be used and consequently also which generation has a right to those revenues. Through drawing on evidence from Norway and Venezuela the paper provides a number of insights on resource management and fiscal discipline.The paper by Bjerkholt and Niculescu considers the negative effects which resource abundance often has upon the economy and questions whether fiscal rules can help to make better use of resource gains and thereby also achieve higher growth rates. Whilst rules alone cannot be a guarantee for success, appropriate rules can work towards a shift from short term perspectives on resource revenues to long term pursuit of sustainability and growth. The paper examines recent fiscal rules adopted in two large oil producing countries. 

  • - Norway presents an example of a ‘bird-in-the-hand’ strategy whereby an oil savings account and a macro fiscal rule “limiting the fiscal deficit to the return on assets accumulated from liquidated resource wealth” (p. 176).  This allows revenue use to be decoupled from fluctuations in oil prices. The authors note that this strategy is applicable in economies which have a fiscal situation which enables an effective operation of a savings fund created from selling off significant parts of the country’s resources.
  • - A recent fiscal reform in Venezuela can be characterised as a “birds-in-a-bush” strategy. In an unstable economic situation, Venezuela had to prioritize macroeconomic stability through managing cash-flow risk. It opted therefore to temporarily separate saving and stabilization functions, combining these with a rules-based fiscal framework. The authors find that such rules “should significantly strengthen Venezuela’s public finances” (p. 176).

 Access the article here.

September 17, 2012

Norway is a often used as a shining example of good natural resource management. First in a series of short case studies, "A comprehensive resource development strategy: Norway's path to inclusive and sustainable development" charts the creation of a comprehensive policy framework that helped Norway resist many of the problems facing resource-rich countries, and establish the country as one of the most successful economies in the world. The case study highlights many of the issues contained in Precept 1 of the Natural Resource Charter. In particular, it highlights some of the factors already present in the country that ensured the success of the policy framework, but cautions that such factors may not be easily replicated in other countries. The case also suggests that the path to sustainable development is not yet complete, and further structural changes may be necessary.

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