recurrent spending (excluding development spending) over non-diamond revenue, with the objective of keeping the ratio below 1. Adhering to this rule sets aside diamond revenue to finance the accumulation of financial assets and development spending.

- There is an indicative target on the composition of spending, which specifies that development spending should be at least 30 percent of total spending.

- An indicative target of a nonnegative fiscal balance was established in 2003.

- Foreign and domestic debt are each prohibited from exceeding 20 percent of GDP.

Surplus fiscal savings are deposited into the Pula Fund, which invests in long-term instruments overseas, and dividends from these investments are paid to the Treasury.

However, Botswana’s fiscal framework has limitations. The sustainable budgeting principle does not directly incorporate a sustainability concept, and the Pula Fund has been reducing its overall size with withdrawals that are far larger than its inflow (Basdevant 2008; Jefferis 2016). The Pula Fund is not governed by clearly defined withdrawal or deposit rules, with deposits determined by the size of the budget surplus and withdrawals determined by the size of deficits (Markowitz 2020). On balance, however, Botswana has run a fairly prudent fiscal policy, avoiding many pitfalls experienced by other commodity-dependent countries. The strength and stability of Botswana’s institutions have been key in achieving this success (Kojo 2010; Richaud et al. 2019).

**Timor-Leste.** Offshore oil and gas reserves are the main sources of Timor-Leste’s resource revenues. The Petroleum Fund (PF) was established in 2005 to collect oil revenues and is managed by the central bank. The PF primarily invests in offshore assets, such as U.S. Treasury bonds. The PF’s only expenditures are transfers to the budget, payment of operational management fees, and refunds of overpaid taxes. The government has adopted two fiscal rules to guide the use of oil revenue although these rules are not binding.

- The Estimated Sustainable Income (ESI), established in 2005, is a mechanism for integrating the Petroleum Fund and the budget. The ESI is calculated as 3 percent of total wealth plus the present value of projected future oil receipts. That combined amount is what the government is authorized to spend each year. The value of future oil receipts is determined using the U.S. Energy Information Administration's forecasts for West Texas Intermediate crude oil. Transfers exceeding the ESI are allowed only if the government provides a justification that is approved by Parliament. The requirement is designed to constrain the government’s ability to spend government resources without considering long-term fiscal sustainability (Apeti, Basdevant, and Salins 2023).

- The second rule is a political commitment to maintain a ceiling on the cost of external debt at 3 percent per year. It requires the government to benchmark the costs of external borrowing against the average rate of investment returns of the PF.

Channeling all oil revenues into the PF and requiring that the ESI rule is consistent with the sustainable use of funds should, in principle, mitigate the impact of oil price cycles on fiscal expenditure. However, the escape clauses have hindered the effectiveness of Timor-Leste’s fiscal frameworks. Until 2008, government spending of oil revenue was conservative and transfers to the budget to finance the non-oil budget deficit were lower than the ESI. As a result, the net assets of the Petroleum Fund grew rapidly from US$371 million in 2005 to US$4.2 billion in 2008, the equivalent of 647 percent of non-oil GDP.

23