Bangkok, 7-8 December 2016 - Representatives from national governments, international and regional organizations, industry, civil society, and other experts gathered in Bangkok to discuss and share experiences with fiscal frameworks in the extractive sector and how these can be reformed to better support sustainable development.
The workshop on ‘Financing for the Sustainable Development Goals (SDGs): The role of fiscal reforms, revenue management and sovereign wealth funds in the extractive sector’ was organized by the Green Fiscal Policy Network (a joint partnership between UN Environment, the International Monetary Fund (IMF) and the German Development Cooperation Agency (GIZ)) in collaboration with the UNDP-UNEP Poverty Environment Initiative Asia-Pacific.
In the context of discussions to mobilize finance for the 2030 Agenda for Sustainable Development, the workshop explored how to raise and use revenues from the extractive sector to support delivery of the SDGs while reducing some of the negative environmental and social impacts of mining activities. The workshop brought together representatives from Australia, China, Germany, India, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Norway, Nepal, Philippines, Thailand, Timor Leste and Vietnam, providing a valuable opportunity for countries in the Asia Pacific region to share knowledge, experiences and good practices on this topic.
Panel on country experiences with resource revenue management: From left: Seonmi Choi, UNDP-UNEP Poverty Environment Initiative, Nitya Nanda, The Energy and Resources Institute (TERI), India; Niño Raymond B. Alvina, Department of Finance, Philippines; Tumendelger Baljinnyam, National Development Agency, Mongolia; Nurul Huda Romli, Minerals and Geoscience Department, Malaysia
Workshop organizers opening the event. From left: Ian Parry, International Monetary Fund (IMF); Sheng Fulai, UN Environment; Stefan Helming, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
The agenda for the two-day workshop included several presentations from technical experts and country representatives, panel discussions and working group sessions. Some key messages arising from discussions included the following:
Revenues from resource extraction are an important source of public financing in many resource-rich countries and can support delivery of the SDGs and the Paris Climate Agreement. However, the extractive sector faces several challenges including environmental and social impacts, volatilities in international markets, weak fiscal systems, limited government capacities and illegal mining activities.
There is a need for robust fiscal regimes in the extractive sector which are designed to attract investment and raise revenues, foster stability, are easy to administer and ensure compliance. This should be supported by sufficient capacities in tax administration, evaluation mechanisms and good financial governance.
A country-specific fiscal policy framework should guide the allocation of resource revenue between saving and spending depending on the development needs of the country.
‘Investing for investing’ is critical in terms of building a country’s capacity to invest domestically, manage its investment process and enhance its absorptive capacity. This should be supported by an ‘authorizing environment’ with laws and rules designed to have a behavioral impact on investors and independent capacitated institutions to leverage revenues for green investment.
Countries adopt different systems for the distribution of natural resource revenues and benefit sharing at the national and local level which can change over time (e.g. Mongolia). These systems should be carefully and transparently designed, have independent oversight, engage stakeholders and take into account absorption capacities of local governments and communities.
Addressing environmental and social impacts of mining requires a comprehensive policy mix, including fiscal instruments (e.g. carbon tax in India), non-fiscal instruments (e.g. regulations and environmental impact assessments in Malaysia), mitigation measures (e.g. earmarked transfers in China), liability provisions and insurance mechanisms, environmental management funds and mine closure funds (e.g. Myanmar), and community development funds (e.g. Lao PDR) among others. These policies should be supported by adequate institutional capacities to ensure enforcement, robust monitoring and reporting mechanisms (e.g. the Philippines) and stakeholder engagement processes.
The private sector also has an important role to play. Mining companies are increasingly moving away from corporate social responsibility towards operationalizing a sustainable development strategy through community development agreements, incubation programs, machinery leasing and sizing down. Such efforts should be supported by monitoring and evaluation frameworks, quality assurance and controls, stringent international standards and dynamic community engagement.
Well-managed sovereign wealth funds and natural resource funds can support delivery of the Sustainable Development Goals by helping to improve the quality of public spending (e.g. Peru, Chile, Botswana), strengthening international competitiveness (e.g. Saudi Arabia, Kazakhstan), earmarking spending for high impact projects or environmental protection (e.g. Alabama, Texas, Timor-Leste) and supporting ethical investments (e.g. Norway). Using such funds for domestic investments requires careful management and should be carried out through formal budget processes to avoid undermining fiscal rules of the funds and circumventing accountability mechanisms.
Sovereign wealth funds and natural resource funds also require substantive transparency requirements (e.g. Timor Leste) and a balanced growth strategy that focuses on the non-extractive sector to support diversification of the economy.
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Briefing note on fiscal reforms in the extractive sector for green finance