REVIEW: "ILLUMINATING RESOURCE REVENUE TRANSPARENCY,"
AN IMF GUIDE
By Akram Esanov, Revenue Watch Institute

How do you promote fiscal transparency in resource-rich countries? A number of policy making institutions and non-governmental organizations have long sought to address this vexing issue. The International Monetary Fund has recently provided a valuable tool for assessing practices of resource revenue transparency by publishing the revised version of the Guide on Resource Revenue Transparency. Since its first publication in 2005, the Guide on Resource Revenue Transparency has become a major reference source for civil society organizations and governments in resource abundant countries.

In line with the revised IMF Code of Good Practices on Fiscal Transparency, the Guide identifies four pillars for good fiscal transparency management: (1) clarity of roles and responsibilities, (2) open budget processes, (3) public availability of information, and (4) assurance of integrity. The first principle implies that the country’s legal framework should clearly spell out the terms for the government’s ownership of natural resources, and the fiscal regime should safeguard direct government equity participation in resource ventures. The second principle recommends the inclusion of a clear policy statement on the rate of exploitation of natural resources and the management of resource revenues in the budget framework. The third principle of openness of information requires proper budget documentation of resource revenues and spending; reporting on company resource revenue payments, and disclosure of government’s resource-related debt. Finally, the assurance of integrity principle emphasizes the importance of internal control and independent audit procedures for handling resource revenue flows; oversight of companies in the resource sector, and the need for a clear tax administration framework.

Following engaged discussions within the policymaking community, the revised Code includes more explicit requirements for some practices, e.g. specification of a medium-term fiscal policy framework and an audit of the fiscal accounts. The new requirements of the Code are fully reflected in the Guide. In particular, the updated Guide comprehensively discusses important fiscal issues such as medium-term budgeting framework, long-term reporting, resource related funds and internal oversight of revenue flows. Moreover, it recognizes the importance of the Extractive Industries Transparency Initiative (EITI) and reinforces the argument by including additional country examples. The difference between the Code of Good Practices on Fiscal Transparency and the Manual on Fiscal Transparency is that the Code states general principles of fiscal transparency while the Manual deals in greater depth with issues such as public-private partnerships, concessions, and guarantees and explains the principles of the Code using real life examples.

The Revenue Watch Institute welcomes the Guide’s efforts to set clear and comprehensive standards for resource revenue transparency. The RWI actively supports the implementation of such policy documents and seeks to apply the above-mentioned principles in its assessment of fiscal transparency and resource revenue flows in the developing world.

A particular useful feature of the Guide is the provision of specific examples on good practices of fiscal transparency. In addition, the text includes a variety of references to more detailed information on the topic. Most importantly, the Guide helps to identify projects that could have the greatest impact on revenue transparency in resource-rich countries.

From a legal standpoint, however, the Guide lacks the power to encourage government compliance with principles of resource revenue transparency. The Guide is not mandatory and does not include detailed procedures for expenditure transparency. The EITI procedures are supported by the IMF although the IMF does not require its member countries to adopt these procedures. Moreover, the IMF encourages all countries to adopt the good practices included in the Code, however, implementation is voluntary. For example, the EITI spells out procedures for companies and governments to follow in reporting production and revenue flows. But less than two dozen countries have made formal commitments to participate in EITI. The NGO community needs to step up the pressure on incumbent governments to comply with EITI procedures. Hopefully, future updates of the Guide will include more detailed procedures for government spending transparency.

To achieve better results, international non-governmental organizations need to cooperate in their efforts to build the capacity of local civil society actors and government agencies to promote revenue transparency initiatives.

To read the Guide go to: http://blog-pfm.imf.org/pfmblog/2007/10/illuminating-re.html.

Akram Esanov is a Senior Economist at the Revenue Watch Institute. He has worked with leading international financial and developmental institutions such as the IMF, the World Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank Institute. He holds a Ph.D. in Economics from Kansas State University.