Fiscal Frameworks for Resource Rich Developing Countries

Abstract

This paper examines options for fiscal policy frameworks in resource rich developing countries. In doing so, it reassesses the role of the permanent income hypothesis, especially in low-income countries seeking to tackle infrastructure and development needs by scaling up growth-enhancing expenditure. The paper concludes that the fiscal policy framework: - should reflect country-specific factors, which may change over time; - should promote the sustainability of fiscal policy; - should be sufficiently flexible to enable scaling up growth-enhancing expenditure, especially in low-income countries; - should consider absorption capacity constraints and the quality of public financial management systems; - should provide adequate precautionary buffers in countries that are vulnerable to high volatility and uncertainty of resource revenue; and - could be supported by resource funds if they are properly integrated with the budget and the fiscal policy anchor.