Revenues from natural resources such as oil, gas and minerals are an important source of income for the governments of in many developing countries. When properly managed, these revenues can serve as a valuable source of funds poverty reduction, economic growth and sustainable development. Unfortunately, this is often not the case as the lack of transparency and strong regulatory institutions has led to large scale abuse of funds and corruption.
Companies in the extractive industry make payments directly to governments in the form of royalties, bonus payments and taxes providing the state with an independent source of funds unlike taxes which are citizen-dependent. Citizens often have little or no access to information about these payments, because contracts with extractive industry companies are customarily shrouded in mutual confidentiality clauses forbidding either party from disclosing information without permission of the other.
In the economies of resource rich countries, these revenues reduce the need for taxation and thereby eliminate a key motivator for citizens’ scrutiny of public finances. They also give governments ample resources to buy political support through patronage and legislatures often have little or no budget oversight. This partly explains the poor development outcomes in resource rich countries. In this context, an immediate high priority is to improve the quality and public disclosure of data on resource revenue transactions.
When armed with the information of how much money the government is receiving from natural resource revenues, citizens can demand accountability and monitor how the money is spent. The case Studies described in the succeeding of this article such as the Extractive Industry Transparency Initiative and the Publish What You Pay Campaign demonstrate the nature of a number of initiatives that have been launched to help CSOs in conjunction with government and private sector companies, to enhance the public transparency of natural resource revenues. . Component three: Monitoring government borrowing and aid Many developing countries depend on external loans or grants as a major source of revenue. In order to ensure such sources of revenue are justly and equitably used, it is important for citizens and civil society groups to track the source and amount of international aid as well as how the money is being used. When governments borrow money, they add up to the public debts which must eventually be repaid often with interest.
It is therefore important for citizens to be aware of the extent of public debt as well as the conditions attached to loan agreements. Grants are also an important source of government revenue in some countries and can make an important contribution to development. However, aid can also have negative effects, especially if it is not monitored properly or is used in ways that do not benefit people living in poverty. Such efforts should reinforce and complement the monitoring carried out by donors.