EI Sourcebook | Bell - Critical Issues for a Revenue Management Law

Bell - Critical Issues for a Revenue Management Law

Bell, J.C., and Faria. T.M., Critical Issues for a Revenue Management Law in Escaping the Resource Curse, Humphreys, M., Sachs, J.D., Stiglitz, J.E., eds. (New York, Columbia University Press, 2007)

The authors focus on how governments can structure their laws so as to build effective revenue management institutions. With specific reference to the Oil Revenue Management Law of Sao Tome and Principe as an indication of some key areas any revenues management law should ideally cover.

The first issue that needs to be addressed in a revenues management law is the establishment of the account, the type and nature of the account and the relevant custodians needed to manage the account. Custodians are particularly important where the oil fund is held outside the normal government accounts. The preference would be for the funds to be held in institutions outside the producing country, thus reducing susceptibility to the ‘Dutch Disease,’ for developing countries especially, local institutions may not have the necessary capacity to manage funds coming in, given their magnitude. In all cases, it is recommended that clear guidelines are stipulated in law with regards to the management of such funds, including the nature of deposits, withdrawals and spending requirement, including limits on spending; the Sao Tome and Principe law for instance sets limits on the amount of annual expenditure from the revenue account.

Another key provision must be to create bodies which would serve as oversight in areas such as investment policy (this can either be broadly stated with discretionary powers, or give little room for committee discretion such as in the Sao Tome example), selection and oversight of investment managers, and selection and oversight of custodial managers. All such functions should be supplemented by clear mandates, and compensatory policy. Governing rules for an investment committee should be clearly laid out. The membership of the investment committee must be stipulated; in the Saotomean example the committee includes, one member appointed by the President, and two appointed by the National Assembly (one of whom is from the opposition), provisions should also be made where there exists a lacuna or where experience is limited for members of international financial institutions to be selected. It is advised, however, that in all cases members of the ministry of finance and central bank should be represented. A typical investment policy would also include limits thereof, such as prohibition on domestic investment, and prohibition of borrowing against the assets of the fund or against the countries oil resources.

Transparency provisions designed to counter some challenges governments may face when implementing transparency initiatives. They propose solidifying in legal texts, clear transparency rules with detailed provisions for exceptions, exceptions, they argue, should be narrowly drawn such as in the Saotomean example. Oil revenue management laws should also be supplemented by strict legal provisions on public governance and ethical standards. Where such provisions are not already stipulated in existing national legislation, the revenue management law should do so, underlined by severe legal sanctions for violations. The challenge of any law however, is the reality that governments are sovereign and therefore future law makers have the ability to change such laws as they deem fit. The authors thus conclude by setting out some examples on ways in which the risk of changes in law might be mitigated, one such mechanism may be creating strict barriers for change such as approval through super‐majority voting; another is elevating some of the key provisions in the law to Constitutional status.

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