Revenue Spending

The way revenues out of EI activities are spent should not be ad hoc, but should rather be outlined in the strategic framework, as well as in the annual and medium-term budget. Revenues can be put into a Stabilization Fund, used for long-term sustainable investments, or they can be used to improve government finances.

The government should have publicly stated its objectives with respect to revenue management and how it will disburse revenues. Determining appropriate spending choices requires broad political consensus. Choices need to take into consideration the nonrenewable and volatile nature of oil and mining revenues, the sustainability and efficiency of expenditure, and the importance of economic diversification.

The actual use of government revenues in sustainable projects, including capital or recurrent operating and maintenance expenditures, must take place within the framework of the national budget. Spending should be transparent and accounted for.  Legislators can increase fiscal accountability by monitoring public expenditures and verifying the effectiveness of budget execution. Parliaments should establish an impact monitoring system that quantifies the effectiveness of spending. This is a complex endeavor and will likely require assistance from experts, such as auditors. Corporate audits, value for money audits, tax audits and national exploitation company audits can all help to test the soundness of government’s revenue collection and revenue spending.

The management of public finances requires the implementation of systems for budget execution and improvements in public accounting and overall financial reporting. Benchmark indicators exist in the area of public finance management, such as those proposed by the Public Expenditure and Financial Accountability (PEFA) initiative (See Appendix 2). In any case, a sound public investment management system is needed to help screen proposed investment projects based on factors including their cost-benefit or cost effectiveness and implementation readiness. Optimal evaluation of EI projects will include an estimate of their environmental impacts, as well as expected socioeconomic benefits and their long-term sustainability.

Once information on budget execution is available, it is of key importance to track spending and its actual impact all the way down to the end users. In this respect, parliamentarians might want to hold consultations and meetings with their constituents and organize field trips in order to verify the completion of infrastructure and proper delivery of commissioned investments. These meetings and field visits should provide an opportunity to understand many of the causes underlying poor budget execution, and should therefore serve as a basis for parliaments to propose reforms to address any ascertained weaknesses. In addition, parliamentarians might want to verify how annual spending has contributed to long-term development goals. In the case of redistribution of revenue shares to local and regional governments it is crucial that effective oversight and budget control mechanisms are in place at the sub-national level (www.parliamentarystrengthening.org / Budget Module).