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October 04, 2021

Building Better Balance Sheets to Account for Natural Resources

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Posted by Bonnie Ann Sirois, Edwin Ng, and Ross Smith [1]

In 2018, the IMF’s Fiscal Monitor reported that natural resources assets were equal to 38% of GDP in the countries surveyed, reinforcing the scale and importance of natural resources to governments’ balance sheets. However, the natural capital created by natural resources, including water, minerals, and biodiversity, is often not measured by countries, and is therefore not captured in governments’ balance sheets. In June 2021, a panel of experts hosted by the World Bank explored this issue.

The issue of accounting for natural resources in the public sector is prevalent in many jurisdictions. From a public interest perspective, this is an important issue because the identification, quantification and valuation of these assets may inform policy decisions regarding their preservation, conservation, and use. For example, governments often have little idea of the monetary value of natural subsoil resources until after they are extracted. But the rights to extract such resources are typically granted beforehand to third parties who then profit from their extraction.

The International Public Sector Accounting Standards (IPSAS) and some national standards provide guidance on the accounting of items such as land and agricultural assets, and the impact of climate change, including weather-related events that impair the value of tangible assets. However, the IPSAS Board (IPSASB) is undertaking a project on Natural Resources to consider additional guidance related to the accounting for subsoil resources, such as oil, natural gas, and mineral ore, as well as other non-renewable resources that are not generally covered by specific guidance in existing public sector accounting frameworks.

The IPSASB’s Natural Resources Project considers not only extractive resources, but also broader natural resources, such as water and living species. Several countries, such as South Africa and the United States, have initiated their own accounting standards for natural resources. In addition, some guidance on the accounting for water exists in national frameworks, but these standards focus on the reporting of the volumes of water rather than its financial impacts. Models for estimating the economic value of natural resources have also been developed. While the methodology and objectives of these economic models differ from accounting models, both provide crucial and complementary information needed to inform policy making and improve stewardship over these assets.

Despite the existing guidance available, many countries continue to exclude natural resource assets from their balance sheets or fail to generate a balance sheet altogether. In 2020, only 30% of countries reported their accounts using the accrual basis of accounting, which is the method used to produce a balance sheet. However, 73% of countries surveyed noted they intend to implement accrual basis accounting by 2030.[2] The transition to the accrual basis of accounting has historically been a slow process with implementation support often needed to address capacity constraints such as technical knowledge and IT resources. Even when a comprehensive accrual basis accounting framework is in place, political will and special interests may prevent natural resources or the effects of climate change from being captured in financial reports. The development of specific IPSASs addressing natural resources would be an important step in enhancing the existing framework available for countries to report these assets systematically.


[1] Bonnie Ann Sirois is a Senior Financial Management Specialist in the World Bank; Edwin Ng is IPSASB Technical Lead - Natural Resources Project; Ross Smith is Program and Technical Director, IPSASB.

[2] International Public Sector Financial Accountability Index, 2021 Status Report, International Federation of Accountants and The Chartered Institute of Public Finance & Accountancy, https://www.ifac.org/knowledge-gateway/supporting-international-standards/discussion/international-public-sector-financial-accountability-index-2020 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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