Africa's oil exporters: balancing saving and spending
| Author | Jan-Peter Olters |
| Position | IMF African Department |
| Pages | 138-139 |
Page 138
Oil prices have been near record highs for more than two years, and oil-producing countries have seen exports and revenues skyrocket. In Africa, high prices have often been accompanied by higher production, as more remote oil fields become economically viable. Government coffers have swelled. This revenue bonanza offers African countries enormous opportunities to tackle difficult and long-standing problems and make decisive progress in reducing poverty.
But history has shown how difficult it can be to use natural resource wealth effectively and productively. Previous oil booms have often fueled waste and corruption rather than growth and poverty reduction. This time, many oil exporters have used windfall revenue to reduce debt and accumulate reserves, while spending increases have been relatively prudent. Spending pressures, however, are mounting and the challenge facing African countries is how to ensure an optimal balance between saving and spending that benefits both current and future generations.
The recent regional economic outlook for sub-Saharan Africa (SSA) and a new IMF Working Paper address some of the major macroeconomic challenges that high oil revenues present for fiscal policymaking in the region. Oil booms present very particular policy problems, raising expectations that suddenly abundant oil revenues will be used to address pressing social needs and fragile public infrastructures. But there are considerable macroeconomic threats-in both the long and the short term-to scaling up government expenditure too quickly. To avoid a repetition of past boom-bust cycles, oil producers need to take into account long-term fiscal sustainability, short-term macroeconomic pressures, and institutional absorptive capacity.
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Abundant oil revenues create an illusion that binding budget constraints do not exist. If oil reserves were limitless, governments could simply consume all oil revenues directly. But oil resources are being gradually depleted, and some day in the not too distant future oil revenues will run out. To prepare for that time, governments must run surpluses during periods of oil production and invest those surpluses in alternative sources of wealth, such as financial assets...
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