Managing the public trust: How to make natural resource funds work for citizens

Natural resource funds—a subset of sovereign wealth funds—held approximately $4 trillion in assets as of July 2014. This money, which belongs to the public and comes from extraction of non-renewable resources, should serve the public interest. Governments can use these funds to cover budget deficits when resource revenues decline; to save for future generations; to earmark for national development projects; or to help mitigate Dutch disease by investing abroad. They can also be used to reduce spending volatility, in turn improving the quality of public spending, promoting growth and reducing poverty, and protect oil, gas and mineral revenues from corruption. Citizens in Chile, Norway, some Persian Gulf countries and some U.S. states have experienced these benefits.

Unfortunately, poor natural resource fund governance has often undermined public financial management systems and funds have been used as sources of patronage and nepotism, with dramatic results. Ostensibly designed to steady macroeconomic management or set aside savings for the future, many funds have lacked clear goals or rules, and thus have complicated public finance without making it more effective. And in places like Angola and Russia, they have been used to avoid public scrutiny, facilitating billions of dollars in wasteful spending.

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