Government accounting & the Resource Curse

In most sovereign nations, sub-soil minerals are owned by the state. The minerals are a part of the “commons” – assets owned ultimately by the citizens. The problem we face is that the standards set for IMF, UN & IPSASB (International Public Sector Accounting Standards Board) standards for government accounting, statistics and disclosure treat receipts from minerals as “windfall revenues” rather than “capital receipts on account of the sale of a non-renewable natural resource asset.”

This is a major accounting anomaly, similar to the funding of pension liabilities on a pay-as-you-go basis, but with even bigger and more dangerous implications. The World Development Indicators show that the total energy and mineral depletion that occurred between 1970 and 2013 amounts to $27 trillion. Much of the receipts from this has been already spent or consumed, aided in part by government accounting for mineral receipts as revenues instead of their actual status – sale of an asset.

Goa Foundation has sent a detailed paper to the IMF, UN, IPSASB, World Bank, INTOSAI and the WAVES Partnership explaining these issues in detail. In the paper, we explain how a) there are two competing metaphors for mineral receipts in those contexts where governments own the minerals – “windfall revenue” and “sale of common trust assets”; b) the origins of these metaphors; c) how “windfall revenue” drives many resource curse and broader global issues; d) how the use of the “common trust asset” metaphor would alleviate a whole range of resource curse issues while enabling the clinching of SDGs, and even perhaps create a path towards solving the environmental crisis. The note goes on to discuss the incredible scale of real world negative outcomes, compares government with private sector accounting, the relationship with natural capital accounting, and concludes with a set of recommendations.

What do you think?

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