Government decentralization and resource rent revenue sharing : issues and policy

Abstract

For several years, the issues surrounding fiscal decentralization of government functions, particularly with respect to increased revenue sharing, have been emerging in many nations. In no sector has this been more apparent than with respect to government revenues that are derived from the development of natural resources. These revenues are known as "resource rents."

In most of the nations of the Asia Pacific region, Local Government Units (LGUs) have seen, and continue to see, major resource development projects in coal, fisheries, forestry, gas, metallic and non-metallic minerals, and oil taking place within their jurisdictions, yet they receive few or no additional economic benefits. Concern about the unequal sharing of economic benefits from resource development intensified with the advent of the Asian economic crisis when national government remittances to LGUs decreased dramatically. These remittances decreased even though revenues to national governments continued apace as a result of continued high international demand for resources and because payment for them was made in foreign exchange, not in depreciated local currency.

Today, most governments recognize an urgent need to address decentralization and revenue sharing issues. However, because the issues surrounding the actual processes of government decentralization and resource rent revenue sharing are relatively new, they are poorly understood. As a result, in most cases emerging problems remain largely unanticipated, unresolved, or both.

In the following discussion, the interrelations of the issues surrounding government decentralization and resource rent revenue sharing are addressed in the context of (a) the concept and nature of resource rents, (b) decentralization, (c) the impact of resource development projects, and (d) the impacts of resource rent revenue sharing on national, provincial, and local governments.