Transcript Angola Appropriate Fiscal Responses to the Rapid

Angola
Workshop on Oil Revenue Management
Appropriate Fiscal Responses to the
Rapid Accumulation of Oil Revenues
By Francisco G. Carneiro
May - 2006
The World Bank - Angola
Structure of the Presentation
• Background and main challenges
• Government actions to relaunch the
economy
• Administration of oil revenues
• Appropriate fiscal responses
• Summary of recommendations
Background:
The Most Challenging Issues
Facing Angola in the Near Future
A Country Rich in Natural Resources
Receitas do Petróleo sob Diferentes Cenários de Preços
Na Ausência de Novas Descobertas
Regime (All)
60000
Sum of Gross Rev $M
50000
High price
40000
Base price
Base
High
Low
Figure 1: Angola's Official Diamond Exports
Low price
20000
7,000,000
10000
900
800
6,000,000
5,000,000
1990
1995
2000
2005
2010
2015
2020
2025
Carats
0
2030
Year
3,000
600
4,000,000
500
3,000,000
400
300
2,000,000
200
1,000,000
2,500
100
0
2,000
0
Carats
1,500
1,000
500
Current production
Pending production
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-
US$ million
US$ million
700
1000 b/d
US$ million
Price
30000
The Evolution of World Prices
1974
1980
1971
1981
World Price of Crude Oil since 1861
1998
120.00
100.00
$/barrel
80.00
60.00
40.00
20.00
Source: BP Statistical Review of World Energy
$ 2004
Median
Mean
Median = $18.18 Mean = $24.28
2006
2001
1996
1991
1986
1976
1966
1961
1956
1951
1946
1941
1936
1931
1926
1921
1916
1911
1906
1901
1896
1891
1886
1881
1876
1871
1866
1861
0.00
Association Between Resource
Concentration and Conflict
Bannon, Ian and P. Collier (2003), “Natural Resource and conflict: What We Can Do” in Natural
Resources and Violent Conflict, Bannon, Ian. and Paul Collier (eds.), Washington DC: World Bank
Low-Base Social Indicators
Indicadores Sociais e de Pobreza
Indicador
População (em milhões)
População  20 anos
População abaixo da linha de pobreza
Expectativa de vida ao nascer
Taxa de mortalidade dos 0 aos 5 anos ( por 1000 nascimentos)
Taxa de preval ência do VIH/SIDA
População que sabe onde fazer um teste do VIH
População que sabe pelo menos 3 maneiras de se evitar a infec ção pelo VIH
Taxa de analfabetismo adulta
Taxa de mortalidade maternal
Taxa líquida de escolarização ( 1ª -4ª classe)
Classificação no IDH (entre 177 países)
Classificação PIB/capita (entre 177 países)
Coeficiente de Gini (1995)
Coeficiente de Gini (2001)
Fonte: ECP.
A Posição de
Angola
14.7
60%
68%
42.4
250
3.9%
23%
17%
33%
1800
56%
166
128
0.54
0.62
Dealing with an Appreciating
Exchange Rate
Angola has experienced a more sustained real appreciation of the effective exchange rate
since 2003 than its oil-producing neighbors.
240
Real Effective Exchange Rate
(Index 100=Jan00)
220
Angola
Cameroon
Chad
Congo, Rep. of
Equatorial Guinea
Gabon
Nigeria
200
180
160
140
120
100
Nov-05
Jun-05
Jan-05
Aug-04
Mar-04
Oct-03
May-03
Dec-02
Jul-02
Feb-02
Sep-01
Apr-01
Nov-00
Jun-00
Jan-00
80
What the Government is Doing
Repairing
Infrastructure
Job Creation
Relaunching
the Economy
Improving
Service
Delivery
Social
Stability
Causal Factors
• Technical Factors:
– “Paradox of Plenty”
– Volatility of revenues
• Political Factors:
– Diminished governance
– Under-investment in capacity
Governance Indicator
Governance and
Transparency
United Kingdom
Malaysia
Norway
Colombia
Gabon
Algeria
Russia
Cameroon
Nigeria
Kuwait
Mexico
Iran
Ecuador
Venezuela
Azerbaijan
Angola
Weak Governance
160 Countries
Strong governance
Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm. This chart shows estimates of control of corruption for 160 countries during
2000/01, with selected countries indicated for illustrative purposes. The vertical bars show the likely range of Governance indicators, and the midpoints of these
bars show the most likely value for each country. The length of these ranges varies with the amount of information available for each country. Colors are
assigned according to the following criteria: Red, less than 30% of overall countries rank worse; Yellow, between 30% and 70%; Green, over 70% . Countries’
relative positions in no way reflect the official views of the World Bank or the International Monetary Fund.
Weak Institutional Capacity
• National Tax Department (DNI)
– USD $10 billion in revenues (2004)
– > 30 companies
– > 60 contracts
– 6 professional staff
Sector Management
Assessment
• World class reserves with robust pre-tax
economics
• Up-to-date legal and contractual regime
• Acceptable post-tax returns
• Very significant production build-up, but
with significant mid-term peaking….
The Way Forward
The way forward requires:
1. Better capacity to forecast revenues
2. Appropriate fiscal policies
3. Some form of a stabilization fund (conta
de reserva do Tesouro)
Different Price and Revenue
Scenarios
45000
regime (All)
Sum of TotalGov. Take $M
40000
82.00
High price
35000
72.00
30000
US$ million
62.00
52.00
42.00
32.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Low 54.00 40.00 39.44 38.89 38.33 37.78 37.22 36.67 36.11 35.56 35.00
Base 54.00 56.00 52.00 47.00 43.00 40.00 39.00 38.00 37.00 36.00 35.00
High 54.00 76.00 72.00 67.00 63.00 60.00 59.00 58.00 57.00 56.00 55.00
25000
Base price
20000
15000
10000
Low price
5000
0
1990 1995 2000 2005 2010 2015 2020 2025 2030
price
Different Price Scenarios
base
high
low
Corresponding
Revenues
Year
Different Price and Revenue
Scenarios
Total Government Revenues (US$ million)
Past revenues at historical prices
1990 - 1994
10,247
1995 - 1999
12,119
2000 - 2004
24,251
Future revenues under three price scenarios
Base Price
High Price
Low Price
2005 – 2009
99,930
152,358
74,301
2010 - 2014
95,016
175,672
86,805
2015 - 2019
50,239
94,850
48,232
2020 - 2024
21,556
41,922
21,256
2025 - 2029
5,772
11,748
5,714
Fiscal Policy Response
1600
1400
Assumptions:
1200
Base price scenario
US$
1000
Population grows at
2.9% annually.
800
Financial assets
yield 5% annually.
600
400
Adjusted
government
revenue is
discounted at 10%.
$169
200
Adjusted government revenue per capita
Projected government revenue per capita
29
20
27
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
Ye
ar
0
Interest on accumulated savings per capita
Permanent Expenditure per capita
The essential idea is to convert uncertain per capita future oil revenues into a conservative estimate of what might be spent per
capita in perpetuity, based on those future revenues and on accrued savings and interest from their early investment. The result of
such a policy is a dramatic smoothing of expenditure, which addresses both Dutch Disease and expenditure volatility concerns, and
a transfer of wealth to future years to cover resource exhaustion concerns.
Permanent Expenditure Levels
under Different Assumptions
Discount Rate
Price Scenarios
5%
10%
15%
Low
182
136
107
Base
220
169
136
High
385
292
232
US$ per capita, assuming that population grows by
2.9% annually and that financial assets yield 5%
Practical and Political
Considerations
• Need for agreement on assumptions
• Institutional capacity requirements
• Popular opposition current savings/deferred
expenditures
Economic Policy Objectives
• Manage the impact of an appreciating real
exchange rate
• Agree on a strategy to absorb oil windfall
with a view to move to an MTEF
• Build international reserves/the oil reserve
account as buffers against the foreign
exchange/fiscal impact of revenue volatility
• Promote rapid and bold improvements in
procurement practices
Options to Deal with the Effects of
Appreciation of the Currency
Reduce Costs
• Detailed analysis of the structure of
production costs is essential
• Use of oil revenues for productive
investment (e.g., infrastructure) can lower
domestic costs for the entire economy
• Do not try to fight against the appreciating
trend
Institutional Options to Manage the
Windfall
Box E.1: Elements of a Revenue Management Framework for Angola
Revenue consolidation and collection
The collection of all petroleum related revenues are consolidated through the oil reserve account
Revenues are accounted for according to agreed and transparent accounting guidelines
Revenues are published in an accessible and timely manner
Define savings and consumption
Transfers from the oil reserve account to the budget are based on the agreed savings/expenditure rules.
The rules are clear, predictable, and public, do not depend on administrative or political discretion for their application
In the development of guidelines for savings and consumption, macroeconomic and sustainability concerns are paramount
Institutionalize the transfer mechanism
Transfers from the revenue collecting authority to the budget and the oil reserve account follow predefined rules and occur
automatically, independent of administrative or political discretion
Account management
Management of the funds is based on clear, transparent, agreed, and predictable rules, which allocate clear responsibilities and
reporting requirements.
The BNA is designated as the operational (day-to-day) manager for the account.
The rules for investing the account’s assets must be clear, agreed and published.
Fund assets should to a large extent be invested abroad and in safe instruments
The BNA reports on performance of the oil reserve account and asset allocation according to a preset schedule, and the reports are
made public in an accessible way
A high level oversight committee (key ministries plus qualified external advisers) must be established.
The oil reserve account, its management, and guidelines must be subject to rigorous transparency requirements
There should be a cap limiting the resources accumulated ex-ante to avoid political economy problems.
Summary of the Recommendations
Improve Governance
• Adopt best practice policies to
manage natural resources
• Invest in institutional capacity
• Improve transparency
• Consolidate macroeconomic
stability
Strong political commitment to
guarantee the success of the reforms