Among the various challenges faced by developing countries that have recently joined the ranks of oil producing states is spending their new revenue. An expert suggests that using the revenue to provide cash transfers to the poor is one way of spending oil money while shielding the country from what has been termed as the resource curse.
Todd Moss, senior fellow at the Center for Global Development, explains that the resource curse refers to “the idea that a country’s reliance on natural resource extraction can be detrimental to its economic, political and social well-being.”
Spending oil money to provide cash transfers to the poor, which Moss says is a growing trend in the development world, could help address some of the most common problems that come with earning money from oil.
“Rather than put the funds into the budget (and hope that they trickle down to the people) or into a savings fund (and hope they are used wisely in the future), this would put the cash directly into the hands of the people,” he says.
Moss outlines four reasons why this approach is worth considering:
- It provides the government an incentive to collect taxes and improve its revenue collection system. Moss explains that governments can treat the cash tranfers it gives to its citizens as normal income and tax them accordingly. - It gives citizens incentive to monitor the flow and adminstration of oil money because they expect to directly benefit from the country’s revenue. - It provides an opportunity to promote national equity. - It provides for immediate and significant benefits for the poor.