Since 2007, the International Monetary Fund has played a key role in setting global standards for extractive sector fiscal transparency. That year, the fund released its Code of Good Practices on Fiscal Transparency and the accompanying Guide on Resource Revenue Transparency. The latest draft of the Natural Resource Fiscal Transparency Code is a continuation of this benchmarking.
This latter document adapts the recently issued Fiscal Transparency Code (FTC) to resource-rich countries’ specific public financial management concerns. Potentially, it could spur important improvements in extractive sector stewardship.
To its credit, the IMF conducted extensive consultation in developing the Natural Resource FTC. The latest draft incorporates many changes proposed by the Natural Resource Governance Institute and other organizations during the first consultation period.
Improvements include a strengthened definition for “beneficial owner,” requiring disclosure of natural person or publicly listed company owners. Importantly, this ensures the definition does not allow for disclosure of private companies as owners, behind which identities of individuals can be hidden. The latest draft also requires disclosure of beneficial ownership as “basic” practice, in keeping with requirements of the 2016 EITI Standard. Such disclosure of ultimate owners can help deter and detect corruption, conflicts of interest and tax evasion.
Other strong revisions include disclosure of company payments to governments disaggregated by project as “good” practice. Further, the document now specifies that payments must be disclosed by government payee and payment type at all levels of practice, in keeping with both the mandatory disclosure laws passed in recent years and the 2016 EITI Standard.
Publication of environmental and social impact assessments that can enhance stakeholder ability to understand the full costs of extraction have also been included.
One of the most important roles the Natural Resource FTC can play is in promoting harmonized approaches to transparency in the extractive sector, building on other international and national initiatives. In NRGI’s most recently submitted comments, we have suggested tightening alignment with the EITI Standard and existing mandatory disclosure laws on definition and reporting of beneficial ownership, and on the definition of “project” for the purposes of reporting company payments to governments for the right to extract natural resources. We have also suggested strengthening the transparency provisions for award of licenses, including publication of prequalification criteria and evaluation criteria for competitive bids at all levels of practice.
As the IMF looks to finalize the Natural Resource FTC, the greatest challenge will be translating these powerful provisions into meaningful improvements in transparency and governance. So far, the IMF has conducted 18 fiscal transparency evaluations (FTEs), assessments based on the principles of the Fiscal Transparency Code, to identify vulnerabilities and set reform priorities. Twelve of these have been published to date. Increased uptake and publication of FTEs could boost accountability and bolster extractives sector management in countries where this sector matters most.
Nicola Woodroffe is a legal analyst at the Natural Resource Governance Institute.