Policy Responses: Savings, Spending, Public Debt, and Earmarking

In this chapter, Dr. Mohammed Amin Adam discusses policy responses to the challenges of extractive resources revenues. He outlines policy responses to address the issues that arise, including optimal size of spending versus saving, spending on current generations versus future generations, and addressing the effects of revenue volatility and the Dutch disease by ensuring macroeconomic stability. These can be addressed using fiscal rules, which he discusses in great detail and for each gives advantages and disadvantages, and country examples support these. He also examine debt rules and gives examples. Developing countries also must practice effective planning to manage their investments to address corruption and other vices and avoid earmarking of funds.

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