Commodity Price Shocks and Fiscal Outcomes

The experience of developing countries over 1990-2010 indicates that commodity prices have a significant impact on fiscal outcomes. Both revenue and expenditure rise in response to commodity (import or export) price increases; the response of the fiscal deficit is ambiguous. A floating exchange rate...

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Bibliographic Details
Published in:Policy File 2012
Main Authors: Spatafora, Nicola, Samake, Issouf
Format: Report
Language:English
Subjects:
Banking/Finance
Economic policy
International Monetary Fund
International/Economic development
Online Access:Request full text
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Summary:The experience of developing countries over 1990-2010 indicates that commodity prices have a significant impact on fiscal outcomes. Both revenue and expenditure rise in response to commodity (import or export) price increases; the response of the fiscal deficit is ambiguous. A floating exchange rate regime only partially offsets the impact; foreign-exchange reserves do not dampen the effects. Hence, there is a strong case for fiscal hedging against commodity price shocks. Hedging instruments based on a limited set of benchmark world prices for a narrow set of commodities may suffice to realize most of the potential benefits.