An Overview of Natural Resources in Public Finance
Natural resources are defined as the earth’s raw materials, including minerals, gas, oil, forests, water, and land. They are regarded as important resources in public finance that can bring in money for the state.
Function in Public Finance:
Revenue Generation: Natural resources are used by governments to generate revenue through:
Taxes (such as resource rent taxes and royalties)
Licenses and fees for the right to extract
State-owned businesses that oversee the production of resources
Economic Development: Investments in infrastructure, healthcare, education, and poverty alleviation can be made with resource money.
Sovereign Wealth Funds: To stabilize income and provide for future generations, several nations set aside resource earnings in long-term investment funds, such as Norway’s oil fund.
Stabilization Role: Revenues from natural resources, particularly in nations that rely heavily on them, aid in controlling budget deficits during economic downturns.
Challenges:
Resource Curse: An excessive reliance on resources can result in corruption, bad governance, and disregard for other areas of the economy.
Price Volatility: Revenues are unstable due to fluctuations in global commodity prices.
Impact on the Environment: If resource exploitation is not well controlled, it may have negative effects on the environment.
Depletion Risk: Minerals and oil are examples of non-renewable resources that will ultimately run out.
Best Practices:
Resource management that is open and accountable
Economic diversification
Policies for sustainable development
Infrastructure and human capital investments
Author: Mohamed Yasin
