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International Monetary Fund

generations can benefit from nonrenewable resource wealth notwithstanding the inevitable exhaustion of the resource endowment. This involves policy decisions on how much and at what pace energy wealth is transformed into other assets. However, expenditure decisions in that context need to take the economy’s absorption capacity into consideration, so as to minimize the risk of economic overheating and the erosion of wealth through inflation. At the same time, commodity prices tend to exhibit a high degree of volatility, thus implying that fiscal policy has a role to play in

International Monetary Fund
This Selected Issues paper analyzes medium-term fiscal sustainability in Trinidad and Tobago. The paper focuses on the challenge of distributing the nonrenewable resource wealth across generations. Its recommendations are geared toward the goal of intergenerational distribution and therefore focus on the transformation of the natural resource wealth into other assets. The paper reviews the main aspects of the monetary transmission mechanism in Trinidad and Tobago, and also offers some suggestions to improve the effectiveness of monetary policy transmission.
Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Fiscal policy in countries with a high degree of dependence on oil and other nonrenewable resources is complicated by the uncertainty and volatility of revenues, as well as by the fact that the resources are exhaustible. NRFs have been suggested as a way of dealing with the effects of price variability, making it easier to put revenues aside when prices are high so that they can be made available to maintain expenditures when prices are low. Funds may also serve as mechanisms to allow part of the nonrenewable resource wealth to be shared by future generations

Mr. Johannes Herderschee and Ms. Luisa Zanforlin
Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms.
Mr. Rolando Ossowski, Mr. Steven A Barnett, Mr. James Daniel, and Mr. Jeffrey M. Davis

Abstract

This chapter examines whether funds can help countries pursue good macroeconomic, and especially fiscal policies, and consequent design issues. Nonrenewable resource funds (NRF) have been suggested as a way of dealing with the effects of price variability, making it easier to put revenues aside when prices are high so that they can be made available to maintain expenditures when prices are low. Funds may also serve as mechanisms to allow part of the nonrenewable resource wealth to be shared by future generations. A detailed evaluation of country experience suggests that NRFs have been associated with a variety of operating rules and fiscal policy experience. In several cases, rules have been bypassed or changed and they do not themselves seem to have effectively constrained spending, and the integration of the fund's operations with overall fiscal policy has often proven problematic. Whether the political economy arguments for an NRF outweigh the potential disadvantages will need to be considered based on the situation in each country.

Mr. Zubair Iqbal

-run sustainability. The chapter stresses the importance of a country’s terms of trade for the conduct of fiscal policy; under improving terms of trade, a large resource endowment can act as a substitute for fundamental fiscal reform. However, such policies could be disastrous if the terms of trade worsen over an extended period. Chalk demonstrates that to provide for future generations, governments need to have a strong commitment to replace their nonrenewable resource wealth with financial assets. More recent work in this field has encouraged the establishment of savings and

Mr. Paulo A Medas, Ms. Veronique Salins, and Mr. Jeff Danforth
Resource-rich countries have to manage highly volatile commodity revenues. In periods of revenue booms there is a tendency for large spending scale-ups. When facing large and persistent reductions in commodity prices, some of these countries will need to adjust their budgets to the new reality. In many cases, overall surpluses turn into large fiscal deficits and borrowing costs tend to rise with the fall in commodity prices. This note discusses how to undertake large fiscal adjustments, which often tend to be protracted and with long-lasting impacts on growth. Consequently, the note also highlights how to better prepare for future booms and busts in commodity prices.
Mr. Paulo A Medas, Ms. Veronique Salins, and Mr. Jeff Danforth

significant share of exports and/or fiscal revenues ( IMF 2015a ). 2 Defining fiscal sustainability in resource-rich countries is a complex issue as it involves deciding how to smooth nonrenewable resource wealth over different generations under high uncertainty. IMF (2012) provides discussion of macro-fiscal frameworks for resource-rich developing countries, including sustainability issues—the approach that was endorsed by the IMF Executive Board. IMF (2015a) and Van Der Ploeg (2013) discuss how to best address the uncertainty. 3 The strategy will depend

Mr. Johannes Herderschee and Ms. Luisa Zanforlin

publicly available data on resource discoveries constructed from the World Bank’s Wealth of Nations database. 10 The dataset covers 141 countries over 20 years 11 and contains comprehensive measures of wealth, including physical capital; financial capital; natural capital; human capital; and net foreign assets (NFAs). The study focuses on gas and oil resources, but it also encompasses other forms of nonrenewable resource wealth. According to the database, the value of a country’s stock of nonrenewable resources is measured by the present value of the stream of rents

International Monetary Fund. Fiscal Affairs Dept.

growth and intergenerational equity. More efforts are needed to establish a comprehensive fiscal policy framework in resource-rich countries that can help them cope with heightened uncertainty. The key elements of this framework should include the following: A solid longer-term anchor to guide fiscal policy . Countries face important trade-offs between how much of the nonrenewable resource wealth to consume and how much to save in financial and other assets (such as public infrastructure). Given their large development needs, for low-income countries a large