Oil Funds Research Articles

Timor-Leste Public Financial Management: Progress And Challenges

Since gaining independence, Timor-Leste has demonstrated suboptimal public financial management in handling oil revenues. Over the past two decades, Timor-Leste has relied on oil funds as the backbone of its economy, accounting for up to 80% of the national budget each year. As a consequence, Timor-Leste faces issues arising from this dependency on oil revenues. This research aims to determine the effectiveness of public financial management in Timor-Leste in managing the national budget to support the livelihoods of its citizens. This study employs a qualitative descriptive method to comprehensively describe the existing data. The results indicate public financial management by the Timor-Leste government in handling oil funds. The government has even invited foreign investors from countries such as Indonesia and China to develop infrastructure in Timor-Leste. However, despite these foreign investments, Timor-Leste has yet to create job opportunities that can absorb the existing labor force and sustainably drive the economy.

Asset building policies to lift the resource curse: child development accounts in oil-and-gas-rich countries

Of the approximately 70 low-to-middle-income (LMI) oil-and-gas-rich countries, almost all are victims of the resource curse or paradox of plenty, which conceptualizes the development patterns with petroleum and mineral resources. Lifting the resource curse can positively change the trajectory of global development. After the failure of the implementation of natural reserve funds in most oil-and-gas-rich LMI countries, scholars suggested the direct distribution of natural resource revenues to the population to escape the resource curse. The paper suggests an evidence-based asset-building policy, child development accounts (CDA), linked to oil and gas revenues being directly distributed to the population. CDAs are saving accounts specifically targeting children, started in the late 1980s, to help families to fulfill life goals for their children such as postsecondary education, homeownership, business development, and retirement security. The elements of the recommended policy are based on the findings of three qualitative studies carried out in Azerbaijan in 2017 and 2018, and in six post-Soviet countries in 2019 and 2020. Primary data were collected through in-depth interviews with key informants (N = 94), such as ministers, deputy ministers, representatives of the oil funds, academicians, financial institutions, and local and international nonprofit organizations. Secondary data came from archival records, such as governmental reports, publications from national and international agencies, published research, and statistics from relevant government agencies. Purposive sampling techniques were used. The inclusion criteria were being a senior policy-maker, having a deep understanding of the policy-making process, and having deep knowledge of social protection and child well-being systems in Azerbaijan. The data were analyzed by NVivo. The paper used 10 CDA design elements recommended by Michael Sherraden and his colleagues as well as national CDA policy models from across the globe. Azerbaijan, an oil-and-gas-rich LMI country was chosen as a case study for the recommended policy design

Long-term implications of oil discoveries for international saving in a DSGE model

Possession and production of oil reserves affects the host country’s current account. Throughout the history of the North Sea oil, Norway ran persistent current account surpluses and accumulated public “oil funds.” The other major producer, the United Kingdom did not establish an oil fund. This work models how oil discoveries impact the current account. A small open economy DSGE model with an oil sector expresses the current account as a function of oil discoveries. In this model, an oil discovery creates a long-term borrowing-repayment-saving cycle. Some of the characteristics of the economy that affect oil-related decisions include: the presence of an oil fund, the equity home bias, and the technology of the oil industry. These characteristics are estimated structurally using the North Sea data for Norway and the United Kingdom. The estimation suggests that, upon discovering oil in the North Sea, the populations of Norway and the United Kingdom made similar economic choices but under different circumstances: Norway’s export revenues were amplified by a period of high oil prices in the 2000s, whereas the UK largely balanced its oil trade and did not benefit from the oil price. Similar decisions made under different circumstances led to remarkably different effects of oil discoveries on the current accounts.

Foreign aid, oil revenues, and political accountability: Evidence from six experiments in Ghana and Uganda

Foreign aid may act much like oil money in reducing voters’ willingness to demand accountability from their government, enabling corruption, clientelism, and repression. This is an important causal mechanism connecting public budgets to quality of governance. Yet other scholarship counters that aid is more beneficial than oil, either indirectly because of donor oversight or directly because aid is more likely to produce citizen pressures on governments. Empirical work on the topic employs observational data at the national, macro level, and has left the question unresolved. At the micro level, in some countries citizens have experience with aid revenues and oil funds, thus possessing information about the political implications of these different revenue sources. This article provides the first experimental tests of the direct mechanism linking aid and oil revenues to demands from citizens for greater political accountability. We report the effects of randomly assigned treatments identifying aid funds compared to oil money on behavior of citizens in six survey and lab experiments in Ghana and Uganda. We find no differences in accountability pressures when subjects are randomly assigned to aid or oil conditions in any experiment, including a survey-based field experiment in Uganda that employed very strong information treatments on the extent of aid and oil funds. Though little evidence suggests that either windfall necessarily reduces accountability demands from baseline in a meaningful way, citizens’ actions for aid money were statistically indistinguishable from oil revenues across all experiments. Aid may well have governance effects through the indirect route of donor oversight, but the results presented here suggest no evidence that aid, compared to oil, directly induces greater accountability demands among citizens.

The Role of Oil Fund and Institutional Quality in Moderating Volatility in Nigeria

Many oil-endowed countries, including Nigeria, have been unable to use their resources to project long-term economic growth, a condition often referred to as a resource curse. Using the ARDL method and country-specific data, this article explores the long-term equilibrium relationship between economic growth and commodities terms of trade and its volatility in Nigeria between 1984 and 2014. Moreover, the role of oil fund and governance quality in the long-term growth performance is revealed. The results reported in this article show a long-term relationship between commodity terms of trade and economic growth. More importantly, commodity terms of trade, affects economic growth through capital accumulation and total factor productivity. However, the establishment of oil funds in Nigeria has not had any significant impact on economic growth.

Value at risk forecasting for volatility index

ABSTRACTForecasts of values at risk (VaRs) are made for volatility indices such as the VIX for the US S&P 500 index, the VKOSPI for the KOSPI (Korea Stock Price Index) and the OVX (oil volatility index) for crude oil funds, which is the first in the literature. In the forecasts, dominant features of the volatility indices are addressed: long memory, conditional heteroscedasticity, asymmetry and fat-tails. An out-of-sample comparison of the VaR forecasts is made in terms of violation probabilities, showing better performance of the proposed method than several competing methods which consider the features differently from ours. The proposed method is composed of heterogeneous autoregressive model for the mean, GARCH model for the volatility and skew-t distribution for the error.

Fiscal Policy in Oil‐exporting Countries: The Roles of Oil Funds and Institutional Quality

AbstractOil‐exporting countries face challenges in the conduct of fiscal policy owing to volatile oil revenues, especially in countries with weak institutions. Many oil exporters have established oil funds to delink government expenditure from oil revenues; however, their effectiveness remains unresolved. This paper examines the roles of oil funds and institutional quality in reducing fiscal procyclicality and macroeconomic volatility in 42 oil‐exporting countries from 1960 to 2014 using panel vector autoregression techniques. The results show that oil funds are effective in reducing fiscal procyclicality in countries with high institutional quality. There is also a reduction in the procyclical bias in those with low institutional quality but the statistical evidence is weak. Nevertheless, oil funds are associated with reduced volatility of government consumption and the real exchange rate in countries with low institutional quality. These findings give credence to the macroeconomic stabilization role of oil funds but also reinforce the importance of good institutions.

Transparency and Accountability in the Management of Oil Revenues in Ghana

This paper undertakes a five-year review of the management of oil revenues in Ghana since the commencement of oil production in 2010. Using reports from the Petroleum Transparency and Accountability Index, official records from key state agencies, and interviews with core individuals within the petroleum sector, the paper assesses the quality of transparency and accountability in the management of Ghana's oil revenue. It argues that even though some progress has been made in the transparent and accountable use of oil revenues, more can be achieved if certain critical bills are passed and proactive interventions pursued without further delay on the part of government and policymakers within Ghana's petroleum sector. These would help prevent both potential social conflict that may result from a lack of information on how oil revenues are utilised and the corrupt use of oil funds by politicians and people in authority within the oil industry.

Oil price shocks and macroeconomic adjustments in oil-exporting countries

This paper examines the macroeconomic effects of an adverse oil price shock under different exchange rate and fiscal policy arrangements in 40 oil-exporting countries from 1973 to 2010 using panel vector autoregression techniques. The results show that output and government consumption fall in response to an oil price decline. However, the output response is significantly smaller and smoother in countries with flexible exchange rate regimes due to a larger and immediate real exchange rate depreciation. There is also less need for contractionary fiscal policy as the real depreciation appears to play a sufficient dampening role. In contrast, countries with fixed exchange rate regimes experience a small and delayed real depreciation, leaving fiscal policy to bear the bulk of the macroeconomic adjustments costs. Nevertheless, the presence of oil funds in these countries is associated with smaller fiscal spending cuts and hence a reduced output fall. These findings highlight the shock-absorbing property of flexible exchange rates and the potential macroeconomic stabilisation role of oil funds in insulating against adverse oil price movements, making a case for oil exporters to adopt more flexible exchange rate regimes and establish oil funds as fiscal buffers.

Sustainability of fiscal policy in an oil-rich economy: the case of Nigeria

Purpose – The purpose of this paper is to examine the sustainability of fiscal policy in Nigeria by disaggregating the economy into oil and non-oil segments. Design/methodology/approach – Owing to the enormous influence of the oil revenue, the study distinguishes between the oil and non-oil fiscal balances. In addition, it abstracted from the endogenous macroeconomic environment, therefore, fiscal policy sustainability is investigated on the basis of the responses of the government primary balance to changes in deficits and debt levels. The models are estimated with time-series data from 1970 to 2011 using the Johansen estimation techniques. Findings – The results from the estimations performed suggest that government responds more to deficit targets than debt targets. However, this differs in the non-oil segment, as the fiscal policy actions of government do not consistently respond to either deficit or debt targets. Given this, the overall economy and the oil segment have revealed a strong fiscal sustainability over the years while fiscal policy is unsustainable in the non-oil segment. Research limitations/implications – The major limitation of this study is the unavailability of data on government expenditure resulting from oil revenue. Therefore, it would be imperative to reinvestigate the specifications adopted in this study in follow-up studies. Practical implications – The study includes implications for policy makers, especially in Nigeria and other oil-producing countries, to detect the extent to which the economy should rely on the oil revenue stream as the main source of revenue to government. The proceeds from the oil endowment have not yet trickled down to the rest of the economy where real economic activity could be carried out which would eventually lead to more tax revenue for the government. Originality/value – To assess the sustainability of fiscal policy in an oil-rich economy such as Nigeria, it is imperative to detect the influence of oil funds on both government revenue streams and expenditure decisions. This study has made this distinction.

Effectiveness of Sovereign Oil Funds as Instruments of Fiscal Stability: A Time-Series and Panel Data Analysis of the Relationship between Real Government Spending and Real Oil Export Earnings.

To enrich the debate about the effectiveness of sovereign wealth funds, this paper explores the relationship between real government spending and real oil export revenues for a sample of six countries. This exploration uses an econometric analysis based on time-series data and its purpose is to evaluate if sovereign funds (more precisely sovereign oil funds, SOFs) have moderated government spending responses to oil revenue growth. We enhance this analysis by looking to the influence of the improvement of the political and economic environment (according to the Heritage Foundation index) on the relationship between real government spending and real oil export revenues. Then, for each one of our countries, we determine the influence of the establishment of SOFs on real government spending. We use also panel data regressions to have the confirmation of the influence of funds. Finally, we determine the effect of the improvement of the characteristics of SOFs (according to Truman’s SWF scoreboard) on the correlation between real government spending and real oil export earnings.

Effectiveness of Sovereign Oil Funds as Instruments of Fiscal Stability: A Panel Data Analysis of the Influence of Sovereign Oil Funds on Government Spending and Fiscal Balance

To enrich the debate about the fiscal effectiveness of sovereign wealth funds, this paper explores the effect of sovereign wealth funds (more precisely sovereign oil funds, SOFs) on the government spending in real term and as a share of GDP. First, we evaluate the relationship between the balance of the funds and the real government spending. We also assess how the improvement of the characteristics of the funds may change the real public spending. Then, we introduce an econometric model that explains government spending as a share of GDP with a set of economic and demographic control variables. Thanks to this model, we compare the government spending of countries that have established funds to countries without funds and we also evaluate the change in government spending before and after the establishment of funds. Furthermore, we determine whether a larger balance of funds is better able to perform its stabilizing function. Finally, we extend the exploration to the influence of sovereign funds on the fiscal balance.

Effectiveness of Sovereign Oil Funds as Instrument of Macroeconomic Stability

Mineral-rich developing countries are increasingly using nonrenewable resource funds to deal commodity price volatility. Empirically, the effectiveness of sovereign oil funds (SOFs) in stabilizing fiscal revenue and macroeconomic volatility appears to be rather limited, although there has been some attempt at formal modeling in this regard. This paper attempts to build on this literature by analyzing several propositions regarding sovereign oil funds using panel data regressions. We determine the change in the volatility of consumer price index, broad money, real exchange rate and real government spending following the establishment of the sovereign oil funds. We are also evaluating the impact of the balance of the funds on the volatility of the macro variables, particularly the volatility of the government spending. To finalize our empirical research, we bring new lights to the change in the real GDP growth rate and real exchange rate after the establishment of the SOFs.

Нефтегазовые фонды: роль и значение для экономики России

Нефтегазовые фонды: роль и значение для экономики России

English

The increasing globalization agenda of the world has deepened dialogue between African and Asian countries. The first of such dialogue was held in Phnom Penh, Cambodia between African and Asian experts and Parliamentary leaders on issues of poverty, economic growth and governance. Beneath the emergent Africa-Asia dialogue is the “rotten” animal instinct, which drives one party to use brains or brawn to take what should be (could be) the other party. China, for example, has lent $3 billion loan financing arrangement to gain secure access to the recent oil funds from the governments of Ghana just as it was provided in Brazil, Venezuela, Ecuador and Argentina who have both previously defaulted. The study explores the globalization–rich-poor dialogue nexus to investigate the good, the bad and the ugly side of it in Ghana. It then examines the implications of Ghana-China dialogue on economic growth. Together with other secondary data analyzed, it was found out that offering aid without preconditions, China –Ghana dialogue has presented an attractive alternative to conditional Western aid, and gained valuable diplomatic support to defend its international interests. However, activities of some of the Chinese companies are gradually taken the good side of the policy. The implications of China-Ghana policy dialogue is therefore a mixed blessing and that the consequences on most teething local organizations are likely to prove deleterious if laws protecting these organizations are not enforced by policy makers.   Key words: Globalization, Africa-Asia dialogue, economic growth, China, Ghana.

Sovereign Oil Funds, Instrument to Reduce Macro-Economic Volatility: Effectiveness of Oil Funds as Instrument of Fiscal and Macroeconomic Stability

Sovereign Oil Funds, Instrument to Reduce Macro-Economic Volatility: Effectiveness of Oil Funds as Instrument of Fiscal and Macroeconomic Stability

Sovereign Oil Funds, Instrument to Reduce Macro-Economic Volatility: Effectiveness of Oil Funds as Instrument of Fiscal and Macroeconomic Stability

Sovereign Oil Funds, Instrument to Reduce Macro-Economic Volatility: Effectiveness of Oil Funds as Instrument of Fiscal and Macroeconomic Stability

Sovereign Oil Funds, Instrument for Macro-Economic Stability: Assessment of the Effectiveness of Oil Funds as Instrument of Fiscal Stability

Sovereign Oil Funds, Instrument for Macro-Economic Stability: Assessment of the Effectiveness of Oil Funds as Instrument of Fiscal Stability

Sovereign Oil Funds, Instrument for Macro-Economic Stability: Assessment of the Effectiveness of Oil Funds as Instrument of Fiscal Stability

Sovereign Oil Funds, Instrument for Macro-Economic Stability: Assessment of the Effectiveness of Oil Funds as Instrument of Fiscal Stability

Oil Funds: Perils and Opportunities

Soaring oil prices since the early 2000s has led to a historic transformation of wealth from consuming regions to major oil exporters. In recent years many of these exporters have set up oil funds to utilize their massive and growing oil revenues. These funds are divided into two categories – stabilization and saving funds. Their large investments in Western markets have raised concern that they might be driven by political and strategic interests rather than commercial concerns. This study examines oil funds in the Persian Gulf. It discusses US and European proposals to regulate oil fund investments and argue against excessive regulation.