Can Oil Money Be Spent Well? Alan Gelb on Resource Revenues and Development.
Many developing countries have found that large deposits of oil or other natural resources are more a curse than a blessing. My guest on this week's Wonkcast is Alan Gelb, a senior fellow at the Center for Global Development. Together with co-author Sina Grassman, Alan has written a paper that explores the options facing developing countries with abundant natural resources and draws on historical evidence to recommend best practices for dodging the 'resource curse.'
We begin with a discussion of that curse. Alan explains the various problems that accompany oil revenues. Most obviously, that money is easy to misdirect and can often end up fueling corruption. But even for honest and well-intentioned leaders, oil money still presents special headaches. The extreme volatility of oil prices, which can vary by hundreds of percent from one year to the next, make it exceedingly difficult to plan national budgets. The trick is to stock away money in boom oil years to smooth spending in bust years—not easy even when small surpluses are involved. "Clearly you've got to save," Alan explains. But to flatten the boom-bust revenue cycle, "the typical producer may have to save an equivalent of its whole GDP."