Evaluation of The Russian Federation’s Oil and Gas Revenue
Budgetary Transparency against the IMF
Code on Fiscal Transparency
Table of Contents
- Overview of the Russian Oil and Gas Sector. 12
- Discussion and Analysis 13
- Conclusions and Recommendations. 21
Russia is said to have exhibited strong economic growth in recent years as a result of its oil-rich sector. (Ahrend, 2004). Ahrend (2004) further suggests that Russia is likely to remain heavily dependent on mineral resources for some time to come. Empirical evidence suggests that mineral-based economies tend to suffer from economic stagnation. For example, Renzio et al. (2009) note that a considerable number of developing countries are still trapped in a vicious cycle of poverty and stagnation despite their large amounts of natural resources. In addition, Davis (1995: p. 1766) argues that “mineral-based economies rather have development problems than development advantages”. Davis (1998) also notes that economists and political scientists have recently proposed that mineral-based economies’ growth is below par, despite the mineral windfalls (rents) generated from mineral extraction. The mineral sector has even been classified as a ‘loser’ sector in the economic development race. (Shafer, 1994; cited by Davis, 1998). Citing from a recent World Bank conference on mining and economic development, Davis (1995: p. 1765) observes that several invited experts noted with concern the historical poor per capita economic growth of the mineral-exporting nations. In particular, participants from mineral-based developing economies were justly anxious about their fate. (Davis, 1995: p. 1765). In addition to fears of the “Dutch disease” and the “resource curse thesis” (explanations of these terms follow in subsequent sections), delegates were also concern about the appropriate policy response measures to these issues. (Davis, 1995). Despite the evidence that mineral rich countries tend to suffer from economic stagnation, Russia which depends heavily on oil revenue has surprisingly witnessed tremendous economic growth. The question as to whether Russia’s resource abundance is a blessing or a curse therefore remains a controversial issue. (Ahrend, 2005). On the one hand, it may be said that Russia’s resource abundance is a blessing given that it has witnessed tremendous growth as a result of its oil rich sector. On the contrary one can also say that Russia should not be an exception to other mineral-based economies; that is, following the resource curse thesis, Russia should be expected to suffer economic stagnation and thus its resource abundance should be considered a curse and not a blessing. It has been suggested that mineral-based economies tend to suffer poor growth as a result of poor governance which, arises as a result of poor fiscal transparency. Carneiro (2007) describes the situation in resource dependent countries as the “paradox of plenty” and suggests four contributors to this. These include the “Dutch disease”; oil revenue volatility; weak governance and failure to develop institutional capacity required to faces the challenges of resource wealth. (Carneiro, 2007). The paradox of plenty and weak governance in particular has triggered the IMF and other organizations to prescribe rules and regulations aimed at instituting fiscal discipline in resource-dependent countries so as to ensure that revenue derived from resources is managed in the best interest of all. For example the IMF introduced special guidelines on resource revenue transparency as a means of complementing fiscal transparency in resource-dependent countries. (Renzio et al., 2009). This was done through the introduction of the code of good practices on fiscal transparency in 2007. (IMF, 2007a). Moreover, other initiatives have been adopted with the objective of ensuring that details of funds paid to governments for oil and gas are published. These include the “Extractive Industry Transparency Initiative (EITI)” and the “Publish What You Pay Campaign”. (Renzio et al., 2009). This paper aims at evaluating the budgetary transparency of Russia’s oil and gas revenue against the IMF Code of Good Practice on Fiscal Transparency. The rest of the paper is organized as follows: Section 2 provides a literature review describing the IMF code as well as the difficulties encountered by resource-dependent countries as far as economic growth is concerned; section 3 provides an overview of the Russian oil sector; section 4 provides a discussion and analysis; and section 5 provides some conclusions and recommendations.
According to the IMF (2009) fiscal transparency requires being open to the public about the structure and functions of government that determine fiscal policies and outcomes, as well as the past, present and future fiscal activities of government. When a country adopts fiscal transparency, it can benefit from better-informed public debate and greater government accountability and credibility. (IMF, 2009). In order to promote fiscal transparency, the IMF has developed a “Code of Good Practices” a “Manual on Fiscal Transparency” and a “Guide on Resource Revenue Transparency” to encourage greater fiscal transparency. (IMF, 2007).
Fiscal transparency is important for a number of reasons. According to the IMF (2009) good governance is fundamental to achieving sustainable macroeconomic growth and stability. To achieve good governance, a country must adopt sound policies that ensure fiscal transparency. Fiscal transparency also increases access to domestic and international capital markets, and reduces the severity of crisis. (IMF, 2007). The Code of Good Practices on Fiscal Transparency (2007) (the Code) identifies a set of principles and practices to help ensure that governments are providing a clear picture of the structure and finances of government. (IMF, 2007). Implementation of the Code thus provides assurance to the public that the soundness of fiscal policy can be reliably assessed. While all countries are encouraged to adopt the good practices proposed in the Code, implementation is voluntary. (IMF, 2007). Developed in 1998 as one of the contributions to the IMF Standards and Codes Initiative, the Code provides a set of guidelines on governance designed to support improvements to the architecture of the international financial system. (IMF, 2007). The Code was updated in 2007, based on assessments to date of country observance of fiscal transparency, relative to the good practices identified in the Code. (IMF, 2007). In drafting the revised Code, views were sought from the general public, country authorities, development agencies, academics, and nongovernmental agencies working in the area of budget transparency. (IMF, 2007).
The Code is based on four general principles:
- Clarity of roles and responsibilities. There should be a clear distinction between government and commercial activities, and there should be a clear legal and institutional framework governing fiscal administration and relations with the private sector. Policy and management roles within the public sector should be clear and publicly disclosed. (IMF, 2007).
- Open budget processes. Budget information should be presented in a way that facilitates policy analysis and promotes accountability. Budget documentation should specify fiscal policy objectives, the macroeconomic assumptions used in formulating the budget, and identifiable major fiscal risks. Procedures for collecting revenue and for monitoring approved expenditures should be clearly specified. (IMF, 2007).
- Public availability of information. The public should be provided with complete information on the past, current, and projected fiscal activity of government. This should be readily accessible. Countries should commit to the timely publication of fiscal information. (IMF, 2007).
- Assurances of integrity. Fiscal data and practices should meet accepted quality standards and should be subjected to independent scrutiny. (IMF, 2007). Most countries have scope for improvement in some aspects of fiscal transparency covered by the Code. Diversity across countries in fiscal management systems and in cultural and legal environments, as well as differences across countries in the technical and administrative capacity to improve transparency, inevitably imply that countries will move at different paces to implement the Code. For some countries, technical assistance will be critical to improving fiscal transparency. (IMF, 2007).
To provide guidance on the Code‘s implementation, the IMF publishes a Manual on Fiscal Transparency (the Manual) that elaborates the Code‘s principles and practices in more detail and draws on experiences in member countries to illustrate good practices. Numerous references are provided to assist with the practical implementation of the Code. In addition, the Manual identifies some basic requirements of fiscal transparency to be given highest priority by those countries that would have the greatest difficulty meeting the overall standard of the Code. Some best practice examples are also shown. (IMF, 2007).
The IMF also publishes a Guide to Resource Revenue Transparency (the Guide), revised in 2007, which applies the principles of the Code to the unique set of problems faced by countries that derive a significant share of revenues from oil and mineral resources. (IMF, 2007). The issues arising from the sheer size of such resources for many countries, combined with the technical complexity and volatility of the transaction flows, demand a more detailed set of guidelines than those provided in the Manual. The Guide naturally complements recent initiatives, such as the Extractive Industries Transparency Initiative (EITI), which focuses more narrowly on the reporting of transactions between resource companies and governments. (IMF, 2007).
The Fund encourages all member countries to undertake an assessment of fiscal transparency (called a fiscal transparency module of the Report on the Observance of Standards and Codes, or fiscal ROSC) which documents current practices and establishes country-specific priorities for improving fiscal transparency. (IMF, 2007). Transparency is also assessed in broad terms as part of the regular surveillance and program activities conducted by the IMF for member countries. Both the undertaking of a fiscal ROSC and subsequent publication are voluntary. (IMF, 2007). As of September 2008, 87 countries from all regions and levels of economic development had posted such assessments on the IMF’s Standards and Codes web page. (IMF, 2007). Recently, interest has been particularly strong among countries with significant resource revenues as a companion to EITI evaluations. Updates to the published ROSC are completed at the request of the authorities and, when fiscal ROSCs become out of date, countries can opt for a full ROSC reassessment. As of September 2008, more than 25 countries had undertaken updates or complete reassessments. (IMF, 2007).
Interest in fiscal ROSCs and ROSC reassessments and updates has indicated that many countries want to improve fiscal transparency and are aware of the role that it plays in assessments by other agencies. Many countries are making steady progress in implementing the Code. (IMF, 2007).
Much of the literature has attributed underdevelopment of mineral-based developing economies to the Dutch disease. (Roemer, 1985) cited by Davis (1998) The Dutch disease is defined as a situation where an economy highly dependent on natural resources witnesses a decline in economic development as a result of a depletion of the natural resource or a sudden drop in the price of the resource. (Auty, 1993: p. 3). According to Davis (1995: p. 1768), the Dutch disease is a ‘morbid’ term that denotes the coexistence of booming and lagging sectors in an economy due to temporary or sustained increase in earnings. Mineral economies have been identified to generate an ideal environment for the disease given their notable minerals booming sector. (Davis, 1995). Mineral-based economies are characterized by a booming minerals sector at the expense of the manufacturing and agricultural sectors. (Davis, 1995). Ross (2003) suggests that mineral exports may cause economic volatility, income inequality, and crowding out of productivity growth in the manufacturing sector, which effects could increase poverty and reduce social welfare. Cordon and Neary (1982) cited in Auty (2001) explain the role of the Dutch disease on the deterioration of mineral-based economies using a three-sector model composed of a resource sector such as oil or other primary product exporting industry, a sector of tradables, such as the manufacturing and agricultural sectors and non-tradables. According to the model, a boom in the resource sector has three effects: a spending effect; a relative price effect and a resource movement effect. Looking at the spending effect, Auty (2001) suggests that the increased export revenues increases the demand for both tradables and non-tradables although spending on tradables fails to raise their domestic prices because prices in an open economy are determined in international markets. Consequently, any excess demand is met by imports. (Auty, 2001). Looking at the relative price effect, Auty (2001) suggests that failure to sterilize the increase in foreign exchange will result to an appreciation of the currency, which will in turn reduce the domestic prices of exports as well as those of imports competing with domestic products. In addition, a currency appreciation will lead to a reduction of the rents of the booming sector but may not be sufficient to reduce the sector’s output. (Auty, 2001). Domestic prices of non-tradables will rise with the rise in demand and these prices will neither be affected by the currency appreciation nor competitive imports. This will therefore result to an increase in the prices of non-tradables relative to the prices of tradables, as well as a reduction in exports and an increase in imports. (Auty, 2001). Macroeconomic theory suggests that the national income of a country is positively related to exports and negatively related to imports. The net increase in imports therefore leads to a reduction in the national income of the mineral-based State, which in turn hurts its economic development. Finally, as concerns the resource movement effect, Auty (2001) suggests that the movement of resources between sectors will also affect capital accumulation. Assuming a relatively labour-intensive non-tradable sector and a capital-intensive tradable sector, the movement in favour of the non-tradable sector will tend to raise wages and lower returns to capital thereby reducing capital accumulation. (Auty, 2001). In addition, assuming manufacturing is favourable to growth and that mineral resource booms cause it to decline, the mineral-based economy could experience slower long-term growth than the case would be if it had no mineral resources. (Auty, 2001). To support this view, Auty (2001) cites a number of studies that argue in favour of the fact that mineral resource booms tend to limit the growth of developing mineral based economies. For example, Matsuyama (1993It has also been suggested that mineral windfall facilitate irresponsible fiscal and trade policies. (e.g., Gelb, 1988; Ranis, 1991; Ranis and Mahmood, 1992) cited by Davis (1988).
The issue as to why mineral-based economies remain underdeveloped is somehow controversial. (Auty, 2001). On the one hand, Mainstream economists have argued that primary commodity exports are the only way that countries in the early stages of development can generate the foreign exchange necessary to pay for essential imports and to service foreign debt. (Auty, 2001). On the other hand, Structurist economists (e.g., Presbish, 1950) cited by Auty (2001) argued that a long-run decline in prices for primary exports is an inevitable result of the increasing use of synthetics, shrinking raw material content of finished products and low elasticity of demand for raw materials. In addition, Auty (2001) argues that oligopolistic markets in developed countries indicated that productivities increases there were captured in the form of higher income by workers and owners, while in the developing countries productivity gains were passed on to (northern) consumers in the form of lower prices. What the structurist economists are saying, in effect, is that mineral-rich developing countries, because they lack the capacity to transform their raw materials into finished products, often supply these products to developed or industrialized countries at very low prices. Industrialised countries in turn transform these raw materials into finished products and sell them to developing countries at very high prices, which do not match the prices for which they supplied their raw materials.
Mineral-based economies also tend to have a strong equilibrium exchange rate. This boosts economic growth in the mineral-based economy as imported goods become cheaper thereby leading to an increase in the purchasing power of the population which in turn leads to an increase in the living standard. (Ahrend, 2006). However, Ahrend (2006) notes that the competitiveness of the non-resource based tradable sectors comes under threat. In order to withstand competition from imported goods, the non-resource based tradable sector must increase productivity sufficiently fast in order to keep their international competitiveness. According to economic theory, a strong equilibrium exchange rate leads to an increase in the cost of domestic production. (Shapiro, 2006). This hurts exports more and in turn weakens economic growth. Ahrend (2006) suggests that the appreciating exchange rate has pressure on the non-resource tradable sector with an ultimate impact on equilibrium employment levels. It should be noted that the resource-based sector is a capital intensive rather than a labour-intensive industry which contributes to a reduction in industrial employment. This dampens the growth in the non-resource sector due to an increase in export competition in this sector. Ahrend (2004) notes that expanding the service sector could compensate for lost industrial jobs. However, he argues that employment opportunities in the service sector may be of rather low productivity, which would imply comparatively low wages. This could therefore give rise to social tensions, or, in countries where large wage inequality is socially and politically unacceptable, the service sector may fail to generate a significant part of potential employment. (Ahrend, 2004).
Kubovina et al. (2005) suggest that Russia accounts for 6 percent of the world’s oil reserve and 27 percent of natural gas. In 2003, Russia accounted for 9 percent of global oil exports and 29 percent of gas exports. (Kubovina et al., 2005). The oil industry in Russia is an oligopolistic industry. (Locatelli, 2006). It is structured around a small number of major industrial and financial groups. (Locatelli, 2006). 66% of production and 57% of exports is provided by four major oil companies including Lukoil, Yukos, TNK (now TNKBP) and Surgutneftegaz. (Locatelli, 2006). Most shares in the new companies are held by the Russian banks, with the exception of Rosneft, all of whose shares are held by the State. (Locatelli, 2006). Rosneft owns a marginal percentage of shares approximately only 3.8%. the concentration in the industry can be attributed to huge merger movements in the late 1990s, which resulted in Luckoil to acquire 100% control of KomiTek, 54.2% control of VNK by Yukos, equal shares of control over Slavneft by TNK and Sibneft, and control of Sidanko by TNK. (Locatelli, 2006).
Figure 1. Industry Composition in the Russian Federation.
Figure 1 shows the industry composition of the Russian Federation over the period 2001 to 2006. One can observe that oil sector makes up significant proportion of the Russian resource sector. The gas sector is quite small while the other resources sector is somewhat moderate. This shows just how much the Russian economy is dependent on oil revenue for its growth and therefore calls for sound oil revenue management if the country is to avoid the Dutch disease and maintain sustained growth.
Russia appears to have understood that it is difficult to predict the variability in oil prices and as such has adopted measures to hedge against price volatility. Before we continue with the discussion it is important to take a closer look at the time series movement of oil prices.
Figure 2 : Time series movement of crude oil prices: 1861-2006 (2004 US Dollars).
Source: Caneiro (2007).
One can observe from the figure above that oil price variability has been poorly predicted and that it is difficult to separate out temporary fluctuations from trends. This indicates that it is difficult to predict what will happen to oil prices in future. (Caneiro, 2007).
Russia’s economic growth in recent years can be attributed in part to its growth in oil and gas revenues as shown above. This dependence on oil has motivated Russia to adopt policies aimed at reducing the impact of oil price volatility. Russia is said to have committed itself to serious fiscal discipline as far as its oil revenue is concerned. Ahrend (2004) and (Ellman, 2007) suggest that the country demonstrated exemplary fiscal discipline during the period 1999- 2004. A wide ranging program of reforms was conducted during 2000 – 2003. (Ellman, 2007). The government in 2004 established the Stabilisation Fund of the Russian Federation based on the adoption of amendments of the budget Code of the Russian Federation in December 2003. (Gianella, 2007). The objective of the stabilisation fund is to insure the federal budget against oil-price volatility. Consequently, “surplus” revenues resulting from relatively high oil prices are automatically accumulated in the Fund: in particular 95% of the income from the natural resource extraction tax and 100% of the crude oil export duty above that which would accrue at an oil price of $27/bbl (the “cut-off price”) is automatically accumulated to the Fund. Moreover, the state may also be required to transfer budget surpluses accumulated in the previous year to the Fund although this is less automatic. Surplus funds may also be carried over to finance budgetary deficits in the early months of the New Year, when revenue from tax is low. (Gianella, 2007). As clearly stated in the legislation the funds cannot be spent to finance any expenditure other than federal deficits arising as a result of oil price below the cut off price of $27 for Urals crude. The funds can only be used for other purposes on the condition that they exceed 500 billion rubbles (RUB 500bn). (Gianella, 2007).
Sums in excess of RUB 500bn may be spent for unspecified “other purposes”, with the consent of the Federal Assembly (such spending must be specified in the law on the federal budget for the year in question). (Gianella, 2007). Hitherto, the government has mainly used such surplus revenues for early repayment of foreign debt, although the Fund also covered the Pension Fund deficit arising as a result of the 2005 cut in the Unified Social Tax. (Gianella, 2007; Anker and Sonnerby, 2008). The Fund is managed by the Ministry of Finance. There are restrictions on the type of securities in which the Stabilisation Fund Revenues can be invested in. Accordingly, the revenues from the Fund can be invested only in securities in the euro-governments, the United States and the United Kingdom. (Gianella, 2007). By investing in foreign securities, the Stabilisation Fund stabilises not only the movement of oil prices but the exchange rate as well. This is possible because the investment and spending pattern of the Fund contributes to capital outflows when oil prices are high and capital inflows when oil prices are low. (Gianella, 2007; Anker and Sonnerby, 2008). These inflows and outflows provide a mechanism for counteracting current account pressure on the exchange rate, thus helping to smooth somewhat potentially damaging impact of sharp fluctuations in commodity prices on the real exchange rate. (Gianella, 2007; Anker and Sonnerby, 2008).
Figure 3 : Movement in the Stabilisation Fund
Source: Anker and Sonnerby (2007).
The figure above shows the movement in the Stabilisation Fund over the period January 2004to January 2008. A tremendous growth can be observed for the Fund over this period. Despite the growth in this Fund, there are considerable difficulties to decide on how to spend the Fund. (Astrov, 2007). According to Astrov (2007) two obstacles are making it difficult for the authorities to arrive a consensus. These include widespread corruption in Russia and the possibility of inflationary pressure if the Fund is spent domestically.
Considerable doubts surround the budgetary transparency in the Russian Federation. For example, Anker and Sonnerby (2008) suggest that estimating the exact share of oil and gas extraction industries in the economy is tinged with some major uncertainties. The Russian Federal Statistics Service reports that oil and gas extraction contributed only 8-9 percent of GDP in the 2000s and the figure is said to decline in future. However, Anker and Sonnerby (2008) suggest that the real number is far higher. This finding means that the Federal Statistics Service is not transparent enough in the reports it provides to the general public and this is against the provisions of the IMF Code. Moreover, there are appear to be loopholes in the tax system as Anker and Sonnerby (2008) attribute part of the low contribution of oil and gas to GDP to transfer pricing which occurs as a result of attempts to avoid taxation. President Putin instituted a more expansionary fiscal policy in 2005 which has led to a decline in the budget surplus since then. This has been as a result of increased expenditure in the social and security sphere. President Putin instituted a number of national projects with increased budget spending in health care, education, housing and agriculture. (Anker and Sonnerby, 2008) In an attempt to streamline the country’s finances and expenditures the Russian government in 2007 put forward a draft three-year budget. In the three-year budget the government aims at increasing non-oil deficit by 2¼ – 3¼ percent of GDP through 2009, ending at a balanced budget in 2009 and 2010. Expenditures will be kept at 18-19 percent of GDP. (Anker and Sonnerby, 2008). This implies that Russia’s twin fiscal and current account surpluses will disappear within 2-3 years. This planned expenditure has been defended on the grounds that it will help in overcoming infrastructure bottlenecks and increase investments. (Anker and Sonnerby, 2008). The figure below shows World bank figures for budget balances for the Russian federation. 2007 onwards are estimates and not actual figures. One can observe that the budget balance has taken a downward trend since 2006 and it is expected to turn to zero by 2010. This calls into question Russia’s oil revenue management.
Figure 3: Russian Federation Budget Balance:
Source: Anker and Sonnerby (2008)
Anker and Sonnerby (2008) suggest that a substantial number of the projects on which the government plans to spend the budget are justified and necessary for the long-term growth of the economy as they will lead to increased productivity. However, the government is said to be already operating at close to full employment and further spending is likely to lead to inflationary pressures. (Anker and Sonnerby, 2008). Therefore, if the planned spending is not revised, the economy may soon plunge into a recession.
Moreover, part of the increased expenditure is said to be on projects that do not necessarily increase productivity. For example, President Putin initiated a series of state corporations with no clear concepts.
Taxation of oil revenues has also been considered an issue in the Russian Federation. According to Anker and Sonnerby (2008) the oil and gas sector had relatively modest tax pressure in the 1990s. For example, the effective tax burden on the fuel sector amounted to 31.8 percent of the sector’s value added. Following Vladimir Putin’s accession to power in 2000 a reformation of the tax system was conducted and a flat rate of 13 percent was introduced for income tax. Although this reforms led to an increase in tax revenue, it is suggested that the tax burden on business representatives is approximately 60 percent of total value added in 2007. (Anker and Sonnerby, 2008).
Property rights in Russia are another issue. The country is characterised by weak property rights since its inception. According to Property Rights Alliance’s 2008 international ranking, Russia ranks 92nd out of 115 ranked countries, which an overall score of 4.0 out of 10 available points. As concerns legal and political rights, the country scored 3.2 out of 10 available points. (Anker and Sonnerby, 2008). Observers note that the extractive industries witnessed significant pressure from Russian authorities. A series of oil companies were nationalised. Moreover, foreign owned assets in the energy sector are also at risk of expropriation by the state. For example, the Sakhalin-2 Production Sharing Agreement (PSA) forced foreign partners Shell, Mitsui and Mitsubishi to sell a controlling stake in the Sakhalin Energy operating company to Grazprom. (Anker and Sonnerby, 2008).
Despite these negative comments about oil revenue management, Russia appears to be far better off as compared to other resource-dependent countries especially those in developing Africa. Ascher (2000) suggests that the link between natural resource rents and poor governance arises chiefly because state officials can manipulate their use to meet unpopular or even illegal objectives. On this view, the increase in direct state control over oil-sector assets, in particular, should cause some concern. However, in Russia’s case, following the overhaul of the tax system and establishment of the treasury system of budgetary execution appears to have substantially increased the transparency and efficiency of the fiscal process and thus the fiscal transparency of oil revenue. (Tompson, 2005).
Doubts however remain as far as the governance of the major state-owned enterprises is concerned. The extent to which insiders in these enterprises are accountable is also not clear. As such Russia’s rulers are alleged to be using state-controlled funds including oil and gas revenue to fund activities that they would prefer to keep off-budget. (Tompson, 2005).
Table 1: Human Development Indices (HDIs) for Oil Producing Countries
|Brunei Darussalam||0.866||Iran, Islam. Rep.||0.736|
|United Arab Emirates||0.849||Algeria||0.722|
|Trinidad and Tobago||0.801||Gabon||0.635|
|Libyan Arab Jamahiriya||0.799||Sudan||0.512|
|Saudi Arabia||0.772||Congo, Democ. Rep.||0.385|
Source: Renzio et al. (2009) citing the 2003 Human Development Report, United Nations
Figure 4: Human Development Indices (HDIs) for Oil Producing Countries
Table 1 and figure 4 above show that Russia is performing well as compared to other oil-rich countries. This is demonstrated in its high human development index as compared to the other countries.
Based on the above discussion one can conclude that the Russian Federation is a resource-dependent state. However, its resources seem more of a blessing than a curse as compared to other resource dependent countries. To a greater extent, Russia has taken measures to ensure sound fiscal transparency with its oil and gas revenues. However, due to corruption in the state as well as the continuous ownership of some of the oil companies by the state, it is difficult to say that Russia is 100 percent compliant with the IMF Code. This calls for more work to be done, especially in the area of privatisation.
 According to Auty (1993) mineral-rich countries are those that generate 8 percent of their GDP and 40% of their export earnings from the mineral sector. These economies can be grouped under two sub-categories – hydrocarbon producers such as the Russian Federation and hard mineral exporters (producers of ores such as copper and tin).