The foundation of rational public finance management in oil countries

The good management of public finances in oil countries has established a fiscal policy that plays a vital role in creating and promoting the vision of sustainable and inclusive growth – particularly as summarized by the Sustainable Development Goals. This is because we need financial space to spend on health, education, social protection, and public investment — all of which are key priorities for sustainable growth. In this regard, in order to strengthen the foundations of good finance, it is necessary to use the following:

(1) Strengthening the frameworks of public finance

(2) Good governance and transparency.

Unfortunately, the region has not yet fully recovered from the global financial crisis and other major economic turmoil, while oil-exporting countries have fully recovered from the major oil price shock they faced in 2014.

In general, the region's next economic trajectory is fraught with challenges, which makes the task of fiscal policy more difficult, thus increasing the importance of building strong foundations on which it is based on:

1-Public finance frameworks

The first thing on this basis is the proper fiscal framework. I mean the set of laws, institutional arrangements, and procedures to achieve a country's fiscal policy objectives. Such a framework allows Governments to plan their budgets in the medium term in a manner that reflects clear, consistent, and credible objectives.

There is scope for improving fiscal frameworks in the region. In terms of the medium-term by:

(A) Promoting inclusive and sustainable growth by addressing rising public spending for the government sector, designing effective social protection systems to protect the poorest, as well as eliminating unnecessary fuel subsidies

(b) Using fiscal rules to protect their core priorities, such as social spending, from being influenced by the volatility of commodity prices.

Strong fiscal frameworks also have other important benefits. They form the basis for sound debt management, and allow for better coordination between fiscal and monetary policy, so that the macroeconomic management arms work together, not conflictingly.

2-Good governance and transparency

Good governance and transparency. Good governance refers to institutional frameworks and practices in the public sector. Strong institutions are vital to achieving legitimacy, promoting citizens' understanding of policy objectives more clearly, giving them a stronger voice to express their opinions, and gaining their support for fiscal policy.

Corruption is the biggest disruption to fiscal policy. Without confidence in the fairness of the tax system, it is increasingly difficult to mobilize the necessary revenues to spend on the necessary needs in the areas of health, education and social protection, in addition to the poor governance in determining sources of revenue and public expenditures makes these financial resources unaccountable or unreliable to determine the financing needs in the medium and long term, but in terms of public expenditures, the absence of governance and transparency makes governments squander their money in more cost-effective projects and are not more feasible in terms of creating value or improving welfare.

Based on the foregoing, the good financial foundations of the oil countries should be based on the two pillars of the previous which are mentioned above, without which the public finances will remain subject to fluctuations, whether the source of these fluctuations is the volatility of oil revenues or global epidemics such as the Corona epidemic.