Slide 1 - siteresourcesworldbankorg siteresourcesworldbankorg .ppt by wangnuanzg

VIEWS: 0 PAGES: 23

									              Angola
Workshop on Oil Revenue Management


Appropriate Fiscal Responses to the
Rapid Accumulation of Oil Revenues

            By Francisco G. Carneiro
                  May - 2006


            The World Bank - Angola
 Structure of the Presentation
• Background and main challenges
• Government actions to relaunch the
  economy
• Administration of oil revenues
• Appropriate fiscal responses
• Summary of recommendations
        Background:

  The Most Challenging Issues
Facing Angola in the Near Future
                          A Country Rich in Natural Resources
Receitas do Petróleo sob Diferentes Cenários de Preços
                Regime (All)


          Na Ausência de Novas Descobertas
                                    Sum of Gross Rev $M
                     60000

                     50000
                                                                                                             High price


                     40000                                                                   Base price
                                                                                                                                                                             Price
US$ million




                                                                                                                                                                                      Base
                     30000                                                                                                                                                            High
                                                                                                                                                                                      Low
                                                                                             Low price                                                                                                             Figure 1: Angola's Official Diamond Exports
                     20000
                                                                                                                                                                                                       7,000,000                                                 900

                     10000                                                                                                                                                                             6,000,000
                                                                                                                                                                                                                                                                 800

                                                                                                                                                                                                                                                                 700
                                                                                                                                                                                                       5,000,000
                               0                                                                                                                                                                                                                                 600




                                                                                                                                                                                                                                                                       US$ million
                                                                                                                                                                                              Carats
                                                                                                                                                                                                       4,000,000
                                   1990           1995           2000          2005           2010            2015           2020           2025           2030                                                                                                  500

                                                                                                     Year                                                                                              3,000,000                                                 400

                         3,000                                                                                                                                                                                                                                   300
                                                                                                                                                                                                       2,000,000
                                                                                                                                                                                                                                                                 200
                                                                                                                                                                                                       1,000,000
                         2,500                                                                                                                                                                                                                                   100

                                                                                                                                                                                                              0                                                  0
                         2,000
                                                                                                                                                                                                                                   Carats   US$ million
              1000 b/d




                         1,500


                         1,000


                          500


                           -
                                    2000
                                           2001
                                                   2002
                                                          2003
                                                                 2004
                                                                        2005
                                                                               2006
                                                                                      2007
                                                                                              2008
                                                                                                      2009
                                                                                                              2010
                                                                                                                     2011
                                                                                                                            2012
                                                                                                                                   2013
                                                                                                                                          2014
                                                                                                                                                 2015
                                                                                                                                                        2016
                                                                                                                                                               2017
                                                                                                                                                                      2018
                                                                                                                                                                               2019
                                                                                                                                                                                       2020




                                                                        Current production                           Pending production
                       The Evolution of World Prices
                                                                      World Price of Crude Oil since 1861
                                                                                                                                                                                  1974          1980                 1998
            120.00




            100.00




             80.00
 $/barrel




             60.00




             40.00




             20.00




              0.00
                     1861

                            1866

                                   1871

                                          1876

                                                 1881

                                                        1886

                                                               1891

                                                                      1896

                                                                             1901

                                                                                    1906

                                                                                           1911

                                                                                                  1916

                                                                                                          1921

                                                                                                                 1926

                                                                                                                        1931

                                                                                                                                1936

                                                                                                                                       1941

                                                                                                                                              1946

                                                                                                                                                      1951

                                                                                                                                                             1956

                                                                                                                                                                    1961

                                                                                                                                                                           1966

                                                                                                                                                                                  1971

                                                                                                                                                                                         1976

                                                                                                                                                                                                1981

                                                                                                                                                                                                       1986

                                                                                                                                                                                                              1991

                                                                                                                                                                                                                     1996

                                                                                                                                                                                                                            2001

                                                                                                                                                                                                                                   2006
                                                                                                                                                                    Median = $18.18 Mean = $24.28
Source: BP Statistical Review of World Energy                                                            $ 2004                Median                Mean
        Association Between Resource
         Concentration and Conflict




Bannon, Ian and P. Collier (2003), “Natural Resource and conflict: What We Can Do” in Natural
Resources and Violent Conflict, Bannon, Ian. and Paul Collier (eds.), Washington DC: World Bank
Low-Base Social Indicators
                             Indicadores Sociais e de Pobreza
                               Indicador                                      A Posi ção de
                                                                                 Angola
Popula ção (em milh ões)                                                          14.7
Popula ção  20 anos                                                              60%
Popula ção abaixo da linha de pobreza                                             68%
Expectativa de vida ao nascer                                                     42.4
Taxa de mortalidade dos 0 aos 5 anos ( por 1000 nascimentos)                       250
Taxa de preval ência do VIH /SIDA                                                 3.9%
Popula ção que sabe onde fazer um teste do VIH                                    23%
Popula ção que sabe pelo menos 3 maneiras de se evitar a infec ção pelo VIH       17%
Taxa de analfabetismo adulta                                                      33%
Taxa de mortalidade maternal                                                      1800
Taxa líquida de escolarização ( 1ª -4ª classe)                                    56%
Classifica ção no IDH (entre 177 países)                                           166
Classifica ção PIB /capita (entre 177 países)                                      128
Coeficiente de Gini (1995)                                                        0.54
Coeficiente de Gini (2001)                                                        0.62
Fonte: ECP.
               Dealing with an Appreciating
                     Exchange Rate
                         Angola has experienced a more sustained real appreciation of the effective exchange rate
                                              since 2003 than its oil-producing neighbors.
240
           Real Effective Exchange Rate                                 Angola                                Cameroon
           (Index 100=Jan00)
220                                                                     Chad                                  Congo, Rep. of
                                                                        Equatorial Guinea                     Gabon
200                                                                     Nigeria


180


160


140


120


100


80
                           Nov-00




                                                               Jul-02




                                                                                                               Aug-04




                                                                                                                                          Nov-05
      Jan-00




                                             Sep-01


                                                      Feb-02




                                                                                            Oct-03
                Jun-00




                                                                          Dec-02




                                                                                                                        Jan-05
                                                                                   May-03




                                                                                                     Mar-04




                                                                                                                                 Jun-05
                                    Apr-01
   What the Government is Doing

  Repairing                    Job Creation
Infrastructure


                 Relaunching
                 the Economy



 Improving
                                  Social
  Service
                                 Stability
  Delivery
             Causal Factors
• Technical Factors:
   – “Paradox of Plenty”
   – Volatility of revenues


• Political Factors:
   – Diminished governance
   – Under-investment in capacity
                                              Governance and                                                                 United Kingdom




                                               Transparency
     Governance Indicator




                                                                                          Malaysia
                                                                                                                                                 Norway
                                                                               Colombia


                                                                      Gabon
                                                            Algeria
                                         Russia
                            Cameroon
                                    Nigeria
                                                                                                               Kuwait


                                                                                          Mexico

                                                            Iran
                                                      Ecuador         Venezuela
                                         Azerbaijan
                               Angola
                                                                              160 Countries
                                 Weak Governance                                                                 Strong governance
Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm. This chart shows estimates of control of corruption for 160 countries during
2000/01, with selected countries indicated for illustrative purposes. The vertical bars show the likely range of Governance indicators, and the midpoints of these
bars show the most likely value for each country. The length of these ranges varies with the amount of information available for each country. Colors are
assigned according to the following criteria: Red, less than 30% of overall countries rank worse; Yellow, between 30% and 70%; Green, over 70% . Countries’
relative positions in no way reflect the official views of the World Bank or the International Monetary Fund.
    Weak Institutional Capacity
• National Tax Department (DNI)

  – USD $10 billion in revenues (2004)
  – > 30 companies
  – > 60 contracts
  – 6 professional staff
       Sector Management
           Assessment

• World class reserves with robust pre-tax
  economics
• Up-to-date legal and contractual regime
• Acceptable post-tax returns
• Very significant production build-up, but
  with significant mid-term peaking….
     The Way Forward

The way forward requires:

1. Better capacity to forecast revenues
2. Appropriate fiscal policies
3. Some form of a stabilization fund (conta
   de reserva do Tesouro)
                 Different Price and Revenue                                             regime (All)


                           Scenarios
                                  45000
                                                                                                            Sum of TotalGov. Take $M




82.00
                                                                                           40000
                                                                                           35000                                                           High price
72.00
                                                                                           30000
62.00
                                                                                           25000




                                                                           US$ million
                                                                                                                                         Base price
52.00
                                                                                           20000
42.00                                                                                      15000
32.00                                                                                      10000                                       Low price
        2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
  Low 54.00 40.00 39.44 38.89 38.33 37.78 37.22 36.67 36.11 35.56 35.00                      5000
  Base 54.00 56.00 52.00 47.00 43.00 40.00 39.00 38.00 37.00 36.00 35.00
  High 54.00 76.00 72.00 67.00 63.00 60.00 59.00 58.00 57.00 56.00 55.00                                0
                                                                                                        1990 1995 2000 2005 2010 2015 2020 2025 2030
                                                                                                                                            price
 Different Price Scenarios                                                                                                   Revenues
                                                                                                              Corresponding high low
                                                                                                                        base
                                                                                                                                                    Year
        Different Price and Revenue
                  Scenarios
                Total Government Revenues (US$ million)

                        Past revenues at historical prices

1990 - 1994                                       10,247

1995 - 1999                                       12,119

2000 - 2004                                       24,251

                Future revenues under three price scenarios

              Base Price                        High Price    Low Price

2005 – 2009    99,930                            152,358       74,301

2010 - 2014    95,016                            175,672       86,805

2015 - 2019    50,239                             94,850       48,232

2020 - 2024    21,556                             41,922       21,256

2025 - 2029     5,772                             11,748       5,714
                              Fiscal Policy Response
        1600

        1400
                                                                                                           Assumptions:
        1200
                                                                                                         Base price scenario
        1000
                                                                                                         Population grows at
  US$




         800                                                                                               2.9% annually.
                                                                                                          Financial assets
         600
                                                                                                         yield 5% annually.
         400                                                                                                   Adjusted
                          $169                                                                               government
         200                                                                                                  revenue is
                                                                                                         discounted at 10%.
           0
               r
                    07

                          09

                                 11

                                       13

                                              15

                                                     17

                                                            19

                                                                   21

                                                                          23

                                                                                 25

                                                                                        27

                                                                                               29
             a
          Ye

                   20

                         20

                               20

                                      20

                                            20

                                                   20

                                                          20

                                                                 20

                                                                        20

                                                                               20

                                                                                      20

                                                                                             20
               Adjusted government revenue per capita       Interest on accumulated savings per capita
               Projected government revenue per capita      Permanent Expenditure per capita

The essential idea is to convert uncertain per capita future oil revenues into a conservative estimate of what might be spent per
capita in perpetuity, based on those future revenues and on accrued savings and interest from their early investment. The result of
such a policy is a dramatic smoothing of expenditure, which addresses both Dutch Disease and expenditure volatility concerns, and
a transfer of wealth to future years to cover resource exhaustion concerns.
Permanent Expenditure Levels
 under Different Assumptions

                                      Discount Rate
Price Scenarios          5%             10%                15%
     Low                 182             136               107
     Base                220             169               136

     High                385             292               232




            US$ per capita, assuming that population grows by
             2.9% annually and that financial assets yield 5%
         Practical and Political
            Considerations


• Need for agreement on assumptions
• Institutional capacity requirements
• Popular opposition current savings/deferred
  expenditures
     Economic Policy Objectives
• Manage the impact of an appreciating real
  exchange rate
• Agree on a strategy to absorb oil windfall
  with a view to move to an MTEF
• Build international reserves/the oil reserve
  account as buffers against the foreign
  exchange/fiscal impact of revenue volatility
• Promote rapid and bold improvements in
  procurement practices
 Options to Deal with the Effects of
   Appreciation of the Currency

              Reduce Costs
• Detailed analysis of the structure of
  production costs is essential
• Use of oil revenues for productive
  investment (e.g., infrastructure) can lower
  domestic costs for the entire economy
• Do not try to fight against the appreciating
  trend
Institutional Options to Manage the
              Windfall
                                     Box E.1: Elements of a Revenue Management Framework for Angola

Revenue consolidation and collection
     -    The collection of all petroleum related revenues are consolidated through the oil reserve account
     -    Revenues are accounted for according to agreed and transparent accounting guidelines
     -    Revenues are published in an accessible and timely manner

Define savings and consumption
     -     Transfers from the oil reserve account to the budget are based on the agreed savings/expenditure rules.
     -     The rules are clear, predictable, and public, do not depend on administrative or political discretion for their application
     -     In the development of guidelines for savings and consumption, macroeconomic and sustainability concerns are paramount

Institutionalize the transfer mechanism
       -    Transfers from the revenue collecting authority to the budget and the oil reserve account follow predefined rules and occur
            automatically, independent of administrative or political discretion

Account management
    -     Management of the funds is based on clear, transparent, agreed, and predictable rules, which allocate clear responsibilities and
          reporting requirements.
    -     The BNA is designated as the operational (day-to-day) manager for the account.
    -     The rules for investing the account’s assets must be clear, agreed and published.
    -     Fund assets should to a large extent be invested abroad and in safe instruments
    -     The BNA reports on performance of the oil reserve account and asset allocation according to a preset schedule, and the reports are
          made public in an accessible way
    -     A high level oversight committee (key ministries plus qualified external advisers) must be established.
    -     The oil reserve account, its management, and guidelines must be subject to rigorous transparency requirements
    -     There should be a cap limiting the resources accumulated ex-ante to avoid political economy problems.
Summary of the Recommendations
               Improve Governance

        • Adopt best practice policies to
          manage natural resources
        • Invest in institutional capacity
        • Improve transparency
        • Consolidate macroeconomic
          stability




  Strong political commitment to
guarantee the success of the reforms

								
To top