7. Optimal mix of instruments in a fiscal regime
The instruments discussed above all have different advantages and disadvantages which mean none is sufficient by itself for revenue collection. The optimal combination of instruments will depend upon country circumstances and particularly upon a country’s overall strategy towards its extractives sector. One important factor will be investor perceptions of the country which will affect a country’s bargaining position. Investors will consider all elements of the fiscal regime, alongside other factors affecting likely success such as infrastructure, political stability and the nature of sector regulations.
Policy makers everywhere thus have to balance many different objectives and consider many different fiscal instruments when designing the ideal regime. Accurate modelling and forecasting of revenues from the extractives sector can provide useful guidance in doing that. Developing models, based upon project level data from actual or prospective extractives projects, can help to predict how different fiscal regimes will affect revenue collection.
There are online resources which can assist the process of modelling and forecasting resource projects. This includes the IMF's Fiscal Analysis of Resource Industries (FARI) downloadable model, which the IMF uses for economic modelling of resource projects and associated FARI technical note and manual. Additional resources include online models for specific extractives projects (developed by Open Oil) as well as an open fiscal LNG model and a manual that allows users to test different LNG commercial structures and assess the impact of various fiscal tools along the gas value chain (developed by the CCSI). A gold benchmarking model that allows users to compare 10 fiscal regimes of gold producing jurisdictions (developed by the CCSI).