Barnett and Ossowski - Operational Aspects of Fiscal Policy in Oil Producing Countries

Barnett, S. and Ossowski, R., Operational Aspects of Fiscal Policy in Oil Producing Countriesin Fiscal Policy Formulation and Implementation in Oil Producing Countries, Davis, J.M., Ossowski, R., and Fedilino, A., (eds.) (Washington D.C.: IMF, 2003)

The authors of this book chapter examine the uncertain, volatile and exhaustible characteristics of oil revenues and the complications they raise for fiscal management in the short and long run. They identify a number of operational guidelines or strategies to assist governments in weathering both downturns and upturns in oil prices and revenues.

Procyclical responses to swings in oil revenue should be avoided. Governments should accumulate financial assets during oil booms so that returns from these assets can be used to sustain fiscal policy during busts and/or in a post-oil era. Greater attention should be paid to non-oil fiscal balance in setting fiscal policies and in budget planning. The non-oil balance, especially expenditure, should be adjusted only gradually to oil revenue swings taking into account their likely duration.

These guidelines are offered with the caveat that oil producing countries are different and, as such, their macro-economic objectives may also vary.

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