National Revenue Funds: Their efficacy for fiscal stability and intergenerational equity

By Samuel G Asfaha on August 22, 2007
The fourth in a set of five reports on ways to tackle the commodity price problem, this paper examines the effectiveness of national revenue management mechanisms in smoothing commodity revenues and promoting intergenerational equity.

Institutionalized commodity revenue management mechanisms are increasingly common at the national level to manage high-value, state-owned commodity revenues. These laws and mechanisms attempt to achieve several parallel objectives: isolating revenues from short-term domestic political interests, increasing transparency of revenues, ensuring a predetermined quantity of the revenue is spent on health and education, and saving surplus revenues when commodity prices are high to be used in times of shortage.

This paper first outlines the major challenges associated with commodity price volatility for commodity-dependent developing countries. It then introduces national revenue management, and specifically national revenue funds, as one of the tools available for promoting revenue stabilization and intergenerational equity. The paper then identifies and discusses the factors that will determine the success or failure of these funds, emphasizing the importance of the political and economic incentives which dictate government expenditure. To overcome these challenges, the funds and the laws that govern them must be designed and implemented through a nationwide multi-stakeholder process.

Report details

IISD, 2007