The European Union and the International Monetary Fund step up their cooperation to support resource-rich countries in the management of natural resource wealth

The European Union and the International Monetary Fund step up their cooperation to support resource-rich countries in the management of natural resource wealth

15/10/2017

The European Union and the International Monetary Fund (IMF) have renewed their partnership by signing an agreement formalising a EUR 7 million contribution by the EU to Phase 2 of the Managing Natural Resource Wealth (MNRW) Trust Fund (2017-2022). This comes on top of a previous EUR 5 million EU contribution to Phase 1 (2011-2017).

With this second phase, the EU is confirming its commitment to deepen the capacity building of many countries the Trust Fund supported during the first phase, while engaging with new beneficiary resource-rich countries.

The Trust Fund has already contributed to strengthening the capacity of governments to manage revenues coming from the extractive sector, to enhance public financial management and to achieve a more effective use of government revenues.

In Madagascar for example the MNRW focused on strengthening Public Financial Management (PFM) with the objective of ensuring an effective allocation of fiscal resources, including those from natural resources and promoting accountability. Capacity building made it possible for the authorities to design a robust medium-term fiscal framework, introduce medium-term budgeting and better classify the revenues from natural resources. This has allowed the government to get an accurate and consolidated picture of the wealth generated by extractive industries and to better plan for the necessary social investments that will help the country to achieve the SDGs.

In Mozambique, extractive Industries legislation was passed by the Parliament as a follow-up of the tax reform. This legislation aimed at improving revenue collection and making the tax regime less distortive to investment. Additionally, a new division for Tax Policy and Administration of Natural Resources was established by the Mozambican Tax Authority. These measures have contributed to improve the business environment, therefore paving the way for new investments in the country, and provided the authorities with the necessary capacities and tools to track the resources generated by extractive companies.

The MNRW-TF objectives are directly aligned with those set forward at the 2015 United Nations’ Financing for Development conference in Addis Ababa on domestic revenue mobilization, and the Addis Tax Initiative.

Phase 2 of the MNRW Trust Fund will continue to support low and lower-middle income countries strengthen their management of natural resources to realize the full development potential. This is particularly relevant at a time when many resource-rich countries face challenges in mobilizing revenues to achieve their sustainable development goals faced with the global commodity price slump.

The MNRW Trust Fund assists resource-rich countries with the goal to:

  • Maximize revenues over the life-cycle of extractive projects, through an appropriate fiscal regime design and implementation, while still providing incentives for investors.
  • Support efforts to improve the administration of, and compliance with, resource taxes.
  • Strengthen macro-fiscal and public financial management frameworks in resource-rich countries to better manage volatility and sustainability arising from resource revenues.
  • Build capacity to design and implement macroeconomic and macroprudential policies in countries that are highly dependent on large and inherently volatile resource revenues.
  • Improve statistics that inform policy decisions on, or affected by, exploitation of natural resources.
  • Enhance transparency, thus promoting good governance and an attractive investment climate, while collaborating with other technical assistance providers and civil society organisations, including the Extractive Industries Transparency Initiative (EITI).
  • Provide support for the development of on-line training courses and face-to-face training related to the management of natural resources wealth.

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Commissioner Neven Mimica and IMF Deputy Managing Director Carla Grasso at the MNRW financing agreement.