The resource curse and its implications for fiscal policy

Purpose. The «resource curse» suggests that natural resources have been a curse instead of a blessing for a number of countries. Resource abundance leads to political and social tensions, lower economic growth, rent-seeking, and poor decision-making according to this theory. Mainly, natural abundance constitutes a difficulty for policy decision-makers. A high share of natural resources in the export of a country makes a country vulnerable to changes in resource prices on the world market. This study analyzes the management of the resource revenues from theoretical and practical view in a form of case studies of selected countries rendering both failure and success stories. The aim of the study is to identify challenges connected with dependency on natural resources (measured by the share in the country’s export) and frame up fiscal policy recommendations for countries with natural resource abundance. Methodology / approach. Since the resource curse is the phenomena which must be explored from a wider perspective, the chosen methodology is a qualitative country analysis and cross-country comparison. Results. Data analysis in the period 2008–2018 shows that even countries that have transformed the resource curse into a blessing were hit by a fall in commodity prices in 2015 too. The paper confirms the pro-cyclical nature of fiscal policies in Nigeria and Mexico and the counter-cyclical nature of these policies in Chile and Botswana. Examples of good practice (Chile, Botswana) are shown. Originality / scientific novelty. In the theoretical part of the paper, the recommendations for fiscal sustainability to present are summarized. In the practical part, another sample of countries with up-to-date data is analyzed in hand with a description of the main steps taken by local governments. Practical value / implications. Both theory and practical examples are supposed to help to policy-makers in countries, which must deal with volatility in commodity prices. The main implication is to establish a fiscal rule which is resistant to any amendment and its compliance is controlled by the external institution.