Fiscal Policies of non-renewable resource producing countries

During the CASE Policy Research Seminar on March 25th, 2011 Rolando Ossowski was speaking about fiscal policies of non- renewable resources producing countries.

Mr. Ossowski opened the seminar by giving a snapshot of the policies in the last decades. His presentation focused mainly on the two institutions that the specific countries have set up to support the management of fiscal policies: fiscal rules and resource funds.

According to Mr. Ossowski countries producing non-renewable resources experienced difficulties addressing the complications resource revenues pose. This can be explained by both their volatility and the fact that each revenue originates from abroad and that natural resources are exhaustible. Therefore, fiscal policy must contribute to the achievement of objectives such as sustainability and microeconomic stability. Mr. Ossowski argued for decoupling public spending from volatile and uncertain revenue, since volatility creates uncertainty for investments. In order to stabilize expenditure the non-resource fiscal balance shall be stabilized.

Mr. Ossowski showed that whereas most high-income countries had the largest improvements in fiscal balances in 2004-2008, low-income countries barely improved their overall fiscal positions. Interestingly, it were the low-income producers which had the highest rate of use if the oil revenue windfall whereas their saving rate was the lowest. These negative fiscal impulses combined with the oil prices falling by a third during the recession in 2009, lead within low-and lower-middle income countries from a surplus to a deficit.

With this experience, and also in terms of exhaustible resources oil, gas and to some extend mineral exporting countries are in need of a reliably fiscal policy. According to Mr. Ossowski it has been proved difficult to set up fiscal rules that can withstand changing economic environments. In the third part of his presentation Rolando Ossowski stated that the main objectives of resource funds are stabilization, savings and to some extend aced management. In fact oil funds are not fiscal rules since they do not shape the overall fiscal policy directly. He further distinguished broadly between stabilization funds and saving funds.

[ presentation ]

Video of the CASE Policy Research Seminar