Docstoc

Rolando Ossowski

Document Sample
Rolando Ossowski Powered By Docstoc
					The Role of Fiscal Institutions in
Managing the Oil Revenue Boom

CEPAL XIX Regional Seminar on Fiscal Policy
January 2007

Rolando Ossowski
Fiscal Affairs Department
International Monetary Fund

The views expressed herein are those of the author and should not be attributed
to the IMF, its Executive Board, or its management.
Outline of the Presentation

   Fiscal responses to the recent oil boom in oil-producing
    countries (OPCs)
   Challenges to fiscal management in OPCs
   Use of special fiscal institutions
       Oil funds
       Fiscal rules and fiscal responsibility legislation

   Qualitative and quantitative assessment of special fiscal
    institutions
   Some lessons from experience
   Suggestions for strengthening fiscal management in OPCs
Fiscal Responses to the
Recent Oil Boom
   On average, during 2000-05                                                                         Figure 1. Cumulative Change in the Non-Oil Primary Deficit Relative
    countries spent about half of                                                                                    to Additional Oil Revenue, 2000-05 1/

    the additional fiscal oil
                                                                                                         200


    revenue.




                                              Cumulative change in the non-oil primary deficit
                                                                                                         150




                                                   (in percent of additional oil revenue)
       Higher non-oil primary spending;
        non-oil primary revenue rose
        somewhat.                                                                                        100


       Correlation between oil revenue
        and spending remained high.                                                                       50

       Average non-oil primary deficit
        increased from 26 percent of non-
        oil GDP in 1999 to 38 percent in
                                                                                                           0
                                                                                                 -20           0        20          40          60          80         100          120
        2005.
       Average overall fiscal balance                                                                   -50

        changed from a deficit of 3 percent                                                                        Change in oil revenue (in percent of non-oil GDP)

        of GDP to a surplus of 12 percent.                                                       Source: Fund staff estimates.
                                                                                                 1/ Equatorial Guinea and Libya are not shown because of their very large changes
       Significant variation across                                                             in oil revenue as a ratio to non-oil GDP.

        countries.
                                                                                         15




                                                                                                                                                                                                                                   Oil price (U
                                                      Annual average ra
                                                         expenditures i
                                                                                                                                                                                                                              30
                                                                                         10



Government Effectiveness, Fiscal                                                                   5

                                                                                                   0
                                                                                                                                                                                                                              20




                                                                                                          1993

                                                                                                                 1994

                                                                                                                        1995

                                                                                                                                      1996

                                                                                                                                             1997

                                                                                                                                                     1998

                                                                                                                                                                    1999

                                                                                                                                                                           2000

                                                                                                                                                                                    2001

                                                                                                                                                                                            2002

                                                                                                                                                                                                   2003

                                                                                                                                                                                                                2004

                                                                                                                                                                                                                       2005
                                                                                                                                                                                                                              10


Sustainability, and Vulnerability                                                   -10
                                                                                            -5

                                                                                                                                                                                                                              0
                                                                                                            Primary current spending                              Capital spending                 Oil price (right-axis)


   Higher oil revenues have
    provided OPCs an opportunity                                                                                  Expenditure Trends and Government Effectiveness, 1999-2005 3/

    to raise public spending on                                                                                                                             40

    priority economic and social




                                                              Annual average rate of increase of
                                                                                                                                                            35


    goals.




                                                                 expenditure in real terms
                                                                                                                                                            30

                                                                                                                                                            25



    The quality of public financial
                                                                                                                                                            20

                                                                                                                                                           15

    management and fiscal                                                                                                                                   10


    institutions is critical for the                                                                                                                         5



    effective use of the additional
                                                                                                                                                             0
                                                                                                   -2.0          -1.5          -1.0           -0.5                0.0         0.5          1.0            1.5          2.0         2.5
                                                                                                                                                             -5

    resources.                                                                                                                                              -10

                                                                                                                               Index of government effectiveness, 1998

   Long-term fiscal sustainability
                                                     Source: Fund staff estimates.
       A number of countries recorded substantial
        improvements.                                1/ Excludes Angola.
                                                     2/ Excludes Angola and Equatorial Guinea.
       But in others, there was limited
        improvement or deterioration—mainly due      3/ Excludes Timor-Leste.
        to larger non-oil primary deficits.          4/ The sustainability ratios are computed as the ratio of sustainable primary expenditure relative to actu
                                                       lower than 1 would have to adjust to reach the sustainable benchmark. Countries that are above the 45
   Vulnerability                                      position between 2000 and 2005. The analysis excludes Chad and Timor-Leste.
       Some countries remain vulnerable to oil
        shocks and the possible need for
        adjustments.
Challenges to Fiscal Management in
Oil-Producing Countries
and the Use of Special Fiscal Institutions

   Many OPCs have had difficulties in addressing the
    challenges posed by dependence on oil revenues.
       Oil revenue volatility and uncertainty
       Oil is an exhaustible source of revenue—intergenerational
        issues
       Oil revenue largely originates from abroad
   In response, a number of OPCs have established
    special fiscal institutions (SFIs) to help manage
    fiscal policy.
       Oil funds
       Fiscal rules and fiscal responsibility legislation
Oil Funds

   Proliferation of oil funds in recent years

   Policy objectives
       Stabilization
       Financial savings
       Fiscal transparency
       Asset management

   Operational objectives
       Smoothing budget oil revenue
       Putting away a share of oil revenue
       Providing information on oil revenue and the oil fund’s financial assets
Oil Funds—Operational Issues

   Integration with overall fiscal management
   Rigid versus flexible operational rules
       Rationale for choosing rigid rules
       Channeling money into a fund does not of itself control spending
       Rigid rules have been difficult to design and implement
           Consistency with overall fiscal policy
           Rules have often been changed, bypassed, or eliminated
       Flexible rules: financing funds
   Extrabudgetary spending and earmarking
   Cash management
   Transparency, governance, and accountability
   Growing efforts to better integrate oil funds with budget systems
Fiscal Rules and Fiscal
Responsibility Legislation
   Fiscal rules are less common than oil funds but could have
    a larger impact on fiscal outcomes.
   The design of numerical fiscal rules is very challenging in
    OPCs.
       High oil revenue uncertainty and volatility
   Experience has often shown difficulties in abiding by the
    rules.
       Design issues
       Political economy factors
   Fiscal responsibility legislation
       Few cases in OPCs
       FRL can contribute to transparency and accountability
        improvements important for good fiscal management
       Success depends on design, political commitment to fiscal
        discipline, and overall institutions.
Quantitative Assessment of
Special Fiscal Institutions

   To what extent can SFIs explain differences in fiscal responses
    (across countries and over time), controlling for key factors?
       Non-oil primary balance
       Expenditure dynamics
       Controlling for government net wealth and degree of dependence on oil
        revenue

   Econometric results suggest that:
       SFIs have no significant impact on the non-oil balance or expenditure
        dynamics.
       Liquidity considerations are a key factor for fiscal policy in OPCs.
       Some evidence that broader governance institutions have an impact on
        fiscal outcomes.
Some Lessons from Past
Experience

   OPCs face a difficult task in designing and implementing
    sound fiscal policies.
   Often, SFIs by themselves have not been able to overcome
    these constraints and achieve sustainable improvements in
    fiscal management.
   SFIs have been more successful where there was broad
    political consensus about fiscal objectives.
   There is a need in many OPCs for greater focus on:
       The quality of spending
       Longer-term perspectives in fiscal planning
       Risk analysis
Some Suggestions for Strengthening
Fiscal Management in OPCs


   Enhance public financial management systems where needed
   Implement Medium-Term Frameworks for fiscal policy
       MTFs can help connect the annual budget to longer-term objectives,
        policies, and plans, and can help assess fiscal risks.

   Well-designed SFIs can complement—but not substitute—
    improvements in overall institutional frameworks.
       Successful SFIs require political commitment.
       Sound operational design is critical.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:8/15/2012
language:
pages:11