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DAVID R. MORGAN

Following the oil price rises of late 1973 and early 1974, several organizations predicted massive accumulations of international reserves by the major oil exporting countries by the end of 1980. 1 In the event, their balance of payments surpluses on current account and their reserve accumulations have been substantially lower than expected. 2 One reason is that world economic growth has been slower than assumed. But almost certainly the major source of error concerned the absorptive capacity of the oil exporting nations. The speed with which highly ambitious development strategies could be formulated and implemented in the oil exporting countries during the period after 1973 was not anticipated by many commentators in the early days of the oil crisis. Largely as a result of these factors, the balance of payments surplus on current account of the major oil exporting countries 3 declined from $68 billion in 1974 to $35 billion in 1977; and it has been projected to decline further, to around $10 billion in 1978.4 Further, this surplus is now concentrated among five countries of relatively low absorptive capacity—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and the Socialist People’s Libyan Arab Jamahiriya. The current account position of the other seven oil exporting countries as a group was expected to move into deficit in 1978.

Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

A country with large exhaustible resources such as oil can benefit substantially from them, but the revenues from exploiting these resources can pose challenges. Fiscal policymakers need to decide how expenditure can be planned and insulated from revenue shocks arising from the volatility and unpredictability of resource prices. Decisions also need to be made on the extent to which resources should be saved for future generations.

Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

A country with large fiscal revenues derived from exploiting a nonrenewable resource such as oil typically faces two main problems—that the revenue stream is uncertain and volatile, and that it will eventually dry up. NRFs are sometimes proposed to deal with both these problems. First, a fund may be seen as able to stabilize budgetary revenues. When the resource price is “high,” the fund would receive resources, which it would then pay out to the budget when the price is “low.” Second, a fund may be seen as a way to save some of the revenue generated by exploiting the finite stock of the resource, which can then provide income after it has been exhausted. Funds may also be set up for other reasons: to counteract real exchange rate volatility and “Dutch disease,”2 for liquidity and political economy purposes, and to enhance governance and transparency.

Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

Some countries have considered, or turned to, the use of NRFs to address some of the issues discussed above, such as the short-run stabilization and long-run saving challenges posed by nonrenewable resource revenues. The general characteristic of such funds is that they are public sector institutions, separate from the budget, that receive inflows related to the exploitation of a nonrenewable resource.Table 3.1 summarizes the main objectives and design features of selected funds.

Mr. Ugo Fasano-Filho
The main purposes of this paper are to review the operational modalities and experience of oil funds currently in place in Norway, Chile (copper), the State of Alaska, Venezuela, Kuwait, and Oman, and to draw some preliminary conclusions on their contribution to enhance fiscal management. The outcome so far of their experience has been mixed, with differences among countries reflecting the variety of objectives attached to the funds, the challenges in adhering to established rules, the institutional set-up. and the soundness of the overall fiscal discipline in each country (or state).
Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

The establishment of an NRF requires decisions about its integration within the fiscal framework and its asset-management strategy. Governance, transparency, and accountability issues also need to be addressed.

International Monetary Fund

Abstract

The GCC countries face important policy challenges and opportunities in view of an uncertain oil market outlook and the evolving trends in the regional and international economy. These are compounded by domestic developments, particularly the growing number of nationals entering the labor markets. Indeed, the GCC countries are at a cross road. One path, built on insufficient policy response to less favorable external conditions, carries the risk of low rates of economic growth, rising unemployment, and growing financial imbalances and indebtedness. The second, stressing economic adjustment supported by structural reforms, promises financial stability, growing employment opportunities, and sustained economic growth.

International Monetary Fund

Abstract

The Gulf Cooperation Council (GCC) countries face important policy challenges and opportunities. This paper covers the economic developments and policies since 1980; the impact of the GCC's external environment; the medium-term economic prospects; the broad outlines of a common adjustment and reform strategy, and the implications of adjustment in the GCC countries on the rest of the Middle East and North Africa region.

Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

This chapter examines whether funds can help countries pursue good macroeconomic, and especially fiscal policies, and consequent design issues. Nonrenewable resource funds (NRF) have been suggested as a way of dealing with the effects of price variability, making it easier to put revenues aside when prices are high so that they can be made available to maintain expenditures when prices are low. Funds may also serve as mechanisms to allow part of the nonrenewable resource wealth to be shared by future generations. A detailed evaluation of country experience suggests that NRFs have been associated with a variety of operating rules and fiscal policy experience. In several cases, rules have been bypassed or changed and they do not themselves seem to have effectively constrained spending, and the integration of the fund's operations with overall fiscal policy has often proven problematic. Whether the political economy arguments for an NRF outweigh the potential disadvantages will need to be considered based on the situation in each country.

Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

This section provides an evaluation of the effectiveness of NRFs in two ways. First, it considers the effect of NRFs on government expenditure and its relationship to resource export receipts. The empirical evidence draws on econometric estimates, using data for a number of countries with NRFs.18 Second, it provides a review of selected country experience with NRFs to assess whether, and in what way, the rules of the NRF may have constrained government behavior.