The Challenges of Macroeconomic Management of Natural Resource Revenues in Developing Countries: The Case of Uganda

The paper’s main purpose is to analyze the impact of different policies regarding the disposition of the expected government revenues from the exploitation of recent oil discoveries in Uganda. Several simulation exercises were performed in order to compare alternative policies. As discussed in the introduction, the traditional policy advice of international economic organizations, particularly the IMF, for natural resource-rich countries has been based on the permanent income hypothesis (PIH), advocating for the preservation of the natural resource wealth by saving the natural resource revenues externally in a (sovereign) wealth fund (SWF). That would allow a sustainable constant consumption flow equal to the present value of the resource wealth. That policy would provide fiscal sustainability as well as the preservation of the resource wealth for future generations preventing intergenerational inequality. This type of policy would also mitigate the real exchange appreciation associated with the Dutch Disease and address the issue of resource rent volatility.