Key messages

• Natural resource funds by themselves do not guarantee sound macroeconomic management. In fact, they may complicate budgeting and make public spending less accountable.
• Fiscal rules—multiyear constraints on government spending or public debt accumulation—can help commit successive governments to stable macroeconomic policy, which is necessary for growing and diversifying an economy dependent on large, finite and volatile natural resource revenues. While some natural resource funds are governed by fiscal rules while others are not, fiscal rules generally improve government performance and public financial management.
• The Alaska (USA), Chile, Ghana, Kazakhstan, Norway, Timor-Leste, and Trinidad and Tobago natural resource funds are governed by fiscal rules that generate savings in years when oil, gas or mineral prices or production are high.
• The design of fiscal rules should depend on context; no single rule is appropriate for every country. For example, if a country needs financing for development projects and has the “absorptive capacity” to implement projects proficiently and efficiently, then the government may wish to spend more and save less. However, the government may also wish to save a significant fraction of resource revenues to generate a buffer in case of economic disaster or unanticipated downturns in oil, gas or mineral production or prices.
• In order to function properly, fiscal rules must be designed with specific objectives in mind (e.g., to address absorptive capacity constraints; to stabilize the budget), there must be political consensus on their suitability and they must be enforced through independent oversight.
• Most natural resource funds have deposit and withdrawal rules, which usually operationalize