- Mauricio Villafuerte, Rolando Ossowski, Theo Thomas, and Paulo Medas
- Published Date:
- April 2008
Oil-producing countries have benefited from rising oil prices in recent years, with important implications for their external and fiscal balances. The average price of oil tripled from US$18 a barrel in 1999 to US$53 a barrel in 2005, and rose further in 2006–07. The associated increase in oil exports and fiscal oil revenues had major macroeconomic and fiscal implications for oil-producing countries heavily dependent on oil revenues. External current accounts and fiscal balances have strengthened in many oil-producing countries. Moreover, policymakers conducted fiscal policy in a context where markets and observers increasingly came to expect a significant portion of the rise in oil prices to be long-lasting.
These developments have brought to the fore how governments of oil-producing countries have managed their fiscal policies in light of changing oil market conditions and the role of special fiscal institutions (SFIs) in fiscal management. In particular, there is a need to look into how fiscal policies have responded to the positive oil revenue shock and favorable oil price outlook, and the use of various SFIs to help fiscal management.
- Rather than relying solely on standard budget processes, a number of oil-producing countries have turned to SFIs to help address the challenges posed by the volatility of oil export revenues and the nonre-newable nature of the resource, and manage the additional fiscal revenues arising from higher oil prices (and in some countries, higher oil output). In some cases, the creation of SFIs may also have been motivated by transparency and political economy considerations, and by the desire to engage in more active management of public financial assets.
- SFIs include oil funds, fiscal rules, and fiscal responsibility legislation. In addition, the surge in oil prices in recent years has highlighted the role played by budgetary oil price forecasts for fiscal policy formulation and implementation.
This paper examines the fiscal response of oil-producing countries to the oil boom and the role of SFIs in fiscal management in these countries, and draws some general lessons. Section II provides an overview of the fiscal responses of oil producers to the recent oil boom.1
Sections III and IV review recent experience with SFIs in selected oil-producing countries to help fiscal management, both qualitatively and quantitatively. Based on the evidence, Section V draws some general lessons for fiscal management in oil-producing countries. In doing so, it links findings on best practice regarding the design of SFIs with broader fiscal management advice to oil-producing countries.