With some commodities, including oil, nearing all-time high prices, RWI convened a revenue management workshop in Beirut, Lebanon, for resource-dependent countries seeking to protect their economies from the hazards of boom and bust cycles.
Nineteen civil society members—from Algeria, Azerbaijan, Bahrain, Iraq, Kazakhstan, Kuwait, Libya, Mongolia, Morocco, Tunisia and Yemen—discussed how to promote policies that balance the needs of current and future generations, safeguard against price volatility and ensure that public oil, gas and mining revenues are invested for development.
Fueled by high oil prices, export revenues have nearly doubled for states in the Organization of Petroleum Exporting Countries (OPEC), reaching $1.03 trillion in 2011 and projected for continued growth in 2012. But increases in domestic expenditures suggest these countries have also grown more dependent on boom prices, in order to keep budgets balanced. Some analysts speculate that, to sustain current spending levels, Saudi Arabia needs crude oil to stay at $80 per barrel, while the U.A.E. needs a price around $90 per barrel. For Saudi Arabia at least, this trend is expected to continue, with the IMF estimating a price of $98 per barrel in 2016 in order for the country meet budget requirements, compared with ten years ago when price assumptions were near $30 per barrel.
The key public interest question is whether oil wealth can simultaneously be invested in development and managed without harm to the national non-oil economy, all while taking into account the depletable nature of this resource.
Workshop members assessed their countries’ revenue management systems and highlighted potential problems. For example, governments sometimes overspend natural resource windfalls rather than saving them, so when prices drop dramatically—as in 2008, when oil prices slid from $140 to $40 per barrel in less than six months—governments can face severe budget cuts and reductions in social services. Conversely, some countries may save too much money and miss valuable development opportunities. Volatility can also cause uneven economic growth, threaten employment levels, and make long-term development planning more difficult. In one exercise based on cross-regional comparisons, participants saw how revenue management policies can also impact other industrial sectors, inflation levels and the international competitiveness of non-oil exports.
Several common challenges across the MENA and Eurasia regions emerged from the discussions. Many countries dependent on petroleum revenues have no concrete plan to finance government spending once their oil runs out.
Almost all participants cited a lack of transparency and accountability oil revenue management in their countries. Though some, like Kuwait, have sophisticated systems to manage revenues, they still share common challenges with countries like Yemen, which has no system at all. In these places, few people know where the money flows and even fewer control that flow. Basic data such as oil reserve levels are unreliable (in Kuwait, reserve estimates range from 48-104 billion barrels) or unavailable to the public, which makes it difficult to assess whether revenues are being managed with depletion in mind. MENA transparency organizations from the Gulf to North Africa are organizing access to information campaigns as a step toward reversing this pattern.
According to a 2011 report, Gulf states have pledged $157 billion in additional spending in the wake of the Arab Spring, bolstered by a 93% rise in the average price of OPEC crude since 2009. Governments are often tempted to spend windfalls on “white elephant” projects such as luxury offices, or to give funds directly to the public through one-off cash transfers--as some Gulf countries have done in order to "purchase support" from citizens. Much of the spending recently committed in the Gulf focuses on popular projects like salary increases, bonuses for public sector workers and new housing.
Another pitfall of oil revenue dependency is that it encourages patronage, corruption and weak state institutions. The most egregious case discussed during the workshop was Libya's. A Libyan participant said that "half of the problem is that once people are conditioned to such handouts from the state, they will expect it of future regimes as well," adding that this explains in part why the transitional regime has announced its own cash distribution programs, paying armed groups not to fight.
Participants also discussed the challenges of advocating policy change. MENA and Eurasia share not only a dependence on oil, but also a prevalence of authoritarian regimes. Meruert Makhmutova of the Public Policy Research Center in Kazakhstan, and Gubad Bayramov of the Economic Research Center in Azerbaijan, said they were surprised at how the similarities they saw between their own countries extended to MENA. "The Libya presentation was particularly interesting," said Makhmutova, "because it was a new stage of advocacy development."
Revenue Watch continues to mentor and support workshop as they finalize their research and implement strategies to improve both national policies and public knowledge.
LEARN MORE
- Oil Money and the Arab Spring
- Boom, Bust and Better Policy: Crisis Lessons for Resource Rich Countries
