Authors

Teymur Khalafov¹;  ¹ University of Glasgow, UK

Discussion

The key functions of any Natural Resource Fund (NRF) is using the accumulated resource revenues to stabilize the budget expenditure during the period of low resource prices and saving the excess revenue for future generations. In theory this should help to mitigate the economic and political effects of the resource curse. Yet the studies, attempting to measure the relationship between existence of an NRF and stabilization of the government spending provide mixed results. Moreover, the effectiveness of NRFs in achieving this objective specifically in the developing exporter states is also debated. There are strong arguments that the institutional and governance weakness of such mostly authoritarian exporters, means that their NRFs will a priori be ineffective, since it is unlikely that NRFs which require clear and strict governance rules can function in an environment where all rules can be changed at an autocrat's discretion. While not entirely disagreeing with such view, this paper argues that modifying the definition of the NRF effectiveness can provide new insights to our understanding of how these funds function in authoritarian states. Since the government overspending of the resource revenues is the key driver of the resource curse, the paper analyses the NRF effectiveness by the fund's success in restricting the government access to the accumulated revenues. Using the existing literature the paper provides four main indicators for such an analysis and focuses on the NRFs of the authoritarian states of Azerbaijan and Kazakhstan as a case study. NRFs in these countries while not having managed to mitigate the resource curse (as seen by the high share of the NRF transfers in their budgets), have been partially successful in restricting the access of their governments to the accumulated revenues (as seen by their relatively sizeable reserves). The proposed main reason for this surprising scenario is the increased societal expectations about the NRFs which materialized due to the partial transparency (specifically related to the NRFs) and the actions of governments themselves who use the success of the NRFs to tout their competence in managing resource wealth. As a result the governments must balance between keeping up the public spending levels through transfers from the NRFs, but at the same also increase the savings rate of the accumulated revenues to satisfy these expectations. The paper attempts to understand whether this uneasy status-quo can last in the light of dwindling oil reserves, since soon governments will have to either decrease the transfers from the NRFs or stop saving the resource revenues. The announced reforms in both countries regarding decrease of the budget transfers over coming years cautiously suggests that the former option has been chosen. But the economic and political effects of this choice are uncertain. This paper is part of author's doctoral thesis that researches the effectiveness of NRFs in both countries.