IMF How To Notes

How to Adjust to a Large Fall in Commodity Prices

By Paulo A Medas, Veronique Salins, Jeff Danforth

September 27, 2016

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Paulo A Medas, Veronique Salins, and Jeff Danforth. "How to Adjust to a Large Fall in Commodity Prices", IMF How To Notes 2016, 001 (2016), accessed November 23, 2024, https://doi.org/10.5089/9781475536065.061

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Summary

Resource-rich countries have to manage highly volatile commodity revenues. In periods of revenue booms there is a tendency for large spending scale-ups. When facing large and persistent reductions in commodity prices, some of these countries will need to adjust their budgets to the new reality. In many cases, overall surpluses turn into large fiscal deficits and borrowing costs tend to rise with the fall in commodity prices. This note discusses how to undertake large fiscal adjustments, which often tend to be protracted and with long-lasting impacts on growth. Consequently, the note also highlights how to better prepare for future booms and busts in commodity prices.

Subject: Commodity prices, Environment, Expenditure, Fiscal consolidation, Fiscal policy, Natural resources, Prices, Public financial management (PFM)

Keywords: Budget, Challenges facing commodity exporter, Commodity, Commodity exporter, Commodity prices, Commodity resource, Commodity revenue, FADHTN, Fiscal consolidation, HTN, Impact of commodity price booms, Natural resources, Price, Price fluctuation, Resource boom, Revenue, Revenue boom, Revenue potential, Revenue windfall

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