Revenue Watch Offers Five Recommendations for Resource-Rich Nations in Times of Crisis

For most of this decade, the governments, extractive companies and civil society groups working to strengthen the governance of natural resource revenues have lived in "times of plenty." The World Bank estimates that real commodity prices in local currency units increased by between 75 and 150 percent from 2000 to 2008. Budget surplus averages in oil exporting country grew from 0.6 to 7.7 percent of GDP from 2001 to 2007. In developing countries that export oil, official foreign reserves doubled from $36 to $70 billion between 2000 and 2008. Mineral producing countries experienced a similar boom over the same period, with metal prices rising by over 180 percent.

Until recently, the policy debate has focused on the best ways to manage the resource boom and decrease volatility risks, from smoothing expenditures and diversifying long-term sources of growth, to reviewing extractive contracts and increasing transparency across the extractive value chain.

The dramatic change in the economic and political environment raises new challenges for resource revenue management in developing countries. Global financial turmoil has triggered a sharp decline in prices. Commodity indices have lost 50 percent of their value since their peak in July 2008 and WTI crude oil futures have fallen from $147/barrel to less than $50 over the same period.

What are the implications of the global turmoil for the governance of oil, gas and mineral revenues in developing countries? Volatility in commodity prices is affecting resource-dependent countries through a variety of channels which must be assessed on a case-by case basis. The wide swings in commodity prices will impact each country differently depending on its particular resource endowments. This paper provides a brief description of the channels though which the global financial turmoil can impact the economic and political conditions of resource abundant countries, offers recommendations for the effective, equitable and transparent management of extractive resource revenues.