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© 2021 International Monetary Fund
WP/21/97
IMF Working Paper
Institute for Capacity and Development
Sharing Resource Wealth Inclusively Within and Across Generations
Prepared by Nathalie Pouokam1
Authorized for distribution by Paul Cashin and Valerie Cerra
April 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
This paper discusses the main challenges faced by resource-rich nations in promoting equity; describes policy tools available for managing exhaustible natural resources; and analyzes the relationship between resource wealth and state fragility. It is argued that human capital accumulation, innovation, and technology diffusion can help escape the trap of low growth and resource dependence that plagues so many developing countries. But to make this possible, resource-rich nations must sustain strong citizen participation in the policy making to hold governments accountable and ensure the inclusive management of resource wealth.
Keywords: Natural Resources, Intergenerational Equity, Inclusive Growth, Inequality.
JEL Classification: E32, HQ32, Q34, Q38, O43.
Author’s E-Mail Address: NPouokam@imf.org
Contents
Abstract
I. Introduction
II. The challenges of natural resource wealth
A. The challenge of measuring resource wealth
B. The challenge of political myopia
C. The challenge of falling global demand for hydrocarbon exports
III. Resource curse, Dutch disease, and exchange rate policies
A. The resource curse and the Dutch disease
B. Exchange rate policies for managing resource wealth
IV. Fiscal policy frameworks for managing resource wealth
A. Two frameworks for saving resource wealth: the PIH and BIH
B. Country examples of the PIH and BIH frameworks
São Tomé and Príncipe and the PIH framework
Timor-Leste and the Modified Permanent Income Hypothesis framework
Norway and the BIH framework
C. Fiscal rules for dealing with volatile resource revenue
V. Natural resources, poverty and inequality
VI. Structural policy: making the case for economic diversification
A. The experience of Malaysia with economic diversification
B. The experience of Chile with economic diversification
VII. Conflict and fragility
VIII. Strengthening governance in the management of resource wealth
IX. Conclusion
References
Figures
Figure 1. Exhaustibility of Natural Resources: Number of Years Left to Depletion
Figure 2. Resource Rents, Corruption and Competitiveness
Figure 3. Commodity Prices and Real Effective Exchange Rates
Figure 4. Natural Resources and Governance Indicators
Figure 5. Natural resource wealth causes volatility in government revenues
Figure 6. Fiscal Balance and Debt in Botswana, Chile, and Norway
Figure 7. Resource Rents and Inequality
Figure 8. Poverty and Spending in Health, Education in Resource-Rich Countries
Figure 9. Military Spending and Resource Wealth in Low-Income Countries
I thank Jaime Sarmiento Monroy for excellent research assistance. I am also grateful for comments received from Valerie Cerra, Barry Eichengreen, Andrew Warner, Maksym Ivanyna, Nikola Spatafora, Christian Henn, Olivier Basdevant, J ohn Hooley, Paulo Medas, J oseph Procopio, and participants in the Inclusive Growth book seminar series organized by the IMF Institute for Capacity Development. This is a draft of a chapter that has been accepted for publication by Oxford University Press in the forthcoming book “How to Achieve Inclusive Growth”, edited by V. Cerra, B. Eichengreen, A. El-Ganainy, and M. Schindler.