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### Executive summary — scope, priorities, and provenance
- Broad assessment of the impact of the surge in food and fuel prices on balance of payments, budgets, prices, and poverty for a large sample of countries.
- Analysis reviews countries’ macroeconomic policy responses to date and discusses Fund advice for managing the price increases.
- Policy priorities highlighted:
  - Ensure that food and finance reaches the most affected countries as quickly as possible.
  - Include targeted and scaled-up social measures.
  - Avoid high costs in terms of macroeconomic instability or loss in future agricultural production.
- Analysis presented as an initial assessment of a still-evolving situation; conclusions are tentative.

### Developments, causes, and prospects for high fuel and food prices
- Recent surges reflect a confluence of factors; prices are expected to ease only gradually from recent highs and remain subject to considerable uncertainty.
- Demand-side drivers:
  - Sustained global growth, especially in emerging and developing economies since 2003.
  - Emerging and developing economies are relatively more commodity-intensive, with rising meat consumption and household vehicle ownership.
- Oil supply-side and amplifiers:
  - Oil prices rose from $30 a barrel in early 2003 to around $140 by end-June (2008), some 35 percent above the earlier record high in real terms in 1979.
  - Supply response sluggish, very low spare capacity, tight market conditions.
  - Production and distribution capacity slow to build owing to soaring investment costs, technological, geological, and policy constraints.
  - Financial conditions (drop in real policy interest rates and U.S. dollar depreciation) likely contributed to rising prices earlier in the year.
  - No compelling evidence that commodities as an asset class produced a lasting impact on recent oil trends; financial factors can have short-term effects.
- Food supply-side and amplifiers:
  - Production of the four major food crops has not kept up with rising demand; inventories declined to levels last seen in the early 1970s.
  - Unfavorable weather led to a bad wheat harvest in 2007 for the second consecutive year.
  - Rising oil prices boosted production costs of food commodities.
  - Rising biofuels production in advanced economies accounted for about ¾ of the increase in global corn consumption in 2006-7.
  - Trade restrictions and export curbs (notably for rice) by several major exporters likely accounted for a substantial part of the 2008 rice price surge.
- Prospects:
  - Oil futures markets suggest gradual easing over the next five years with a wide band of uncertainty.
  - Food prices projected to ease only gradually in the short term; more substantial easing expected in the medium term but the recent surge will take longer than usual to unwind.

### Macroeconomic impact — balance of payments, inflation, fiscal, and poverty
- Balance of payments:
  - Adverse balance of payments effects were limited until recently but are now larger; a prolonged period with prices around or above current levels will place serious strains on many countries’ balance of payments.
  - For the 33 PRGF-eligible net food-importing countries (January 2007–April 2008): adverse impact estimated at 0.5 percent of 2007 annual GDP (US$2.3 billion, or 0.2 months of 2008 imports of goods and services).
  - For the 59 PRGF-eligible net oil importers in the same period: impact estimated at 2.2 percent of GDP (US$35.8 billion, or 0.7 months of 2008 imports of goods and services).
- Inflation:
  - Global food price inflation (weighted by GDP in PPP terms) almost doubled in 2007.
  - Food inflation by group: Advanced economies: below 3 percent; Developing countries: almost 10 percent.
  - Median 12-month rate of food price inflation for a sample of 120 non-OECD countries rose from 10 percent at end-2007 to 12 percent at end-March 2008.
  - Median fuel price inflation increased from 6.7 percent at end-2007 to 9 percent at end-March 2008 (an increase of 2.3 percentage points).
  - For every one percent increase in food prices, overall inflation increases by 0.37 percent.
  - For every one percent increase in fuel prices, overall inflation increases by 0.07 percent.
  - Weights (average for 120 non-OECD countries): Import composition: Food, 16; Fuel, 23; Others, 62. Composition of CPI basket: Food, 37; Fuel, 7; Others, 56.
- Fiscal balances and poverty:
  - Fiscal balances under strain; poverty effects adverse and widespread.
  - Vulnerable groups: Urban poor worst affected; rural poor more likely to be partially self-sufficient; food-deficit farmers and urban poor worst affected; food-surplus farmers may not benefit.
  - Undernourishment risk: share of undernourished could rise rapidly above the current 40 percent of total population in developing countries (as stated in source).

### Key quantified survey findings and aggregate fiscal costs
- Roughly half of the countries surveyed reported a net increase in fiscal cost stemming from measures taken in response to the price surges.
- Median annualized fiscal cost in 2007-08 was 0.6 percent of GDP.
- For about one-fifth of the countries, fiscal costs exceed 1 percent of GDP.
- Largest fiscal increases driven by expansions in universal fuel price subsidies.
- Survey coverage and response counts (exact reported totals):
  - Responses with quantification of fiscal costs received from 146 countries.
  - Aggregate survey response rates by Area Department (Total Number / Submission received / (percent) / Submission with fiscal data / Quantitative information / Quantitative data on food / Quantitative data on fuel / Quantitative data on subsidies / Quantitative data on transfers / Quantitative data on other spending):
    - AFR 44 / 44 / 100% / 44 / 43 / 39 / 39 / 24 / 16 / 21
    - APD 32 / 24 / 75% / 24 / 20 / 17 / 18 / 14 / 9 / 11
    - EUR 45 / 42 / 93% / 32 / 26 / 20 / 20 / 8 / 7 / 12
    - MCD 32 / 31 / 97% / 27 / 27 / 24 / 22 / 20 / 12 / 19
    - WHD 34 / 31 / 91% / 31 / 30 / 27 / 25 / 17 / 17 / 14
    - Total 187 / 172 / 92% / 158 / 146 / 127 / 124 / 83 / 61 / 77
- Fiscal response summary:
  - Seventy-nine countries reported a net increase in fiscal cost; increases ranged from near zero to 4.8 percent of GDP; median increase 0.6 percent.
  - Ten countries reported a net increase of more than 2 percent of GDP.
  - Nineteen countries had fiscal costs greater than 1 percent of GDP.
  - As a percent of total revenue plus grants, increases ranged from near zero to 22.9 percent; median 1.9 percent.
  - Thirteen countries reported net decreases in fiscal cost; median decrease 0.6 percent of GDP.

### Balance of payments illustrative scenario (methodology and key counts)
- Scenario: compare Spring 2008 WEO baseline for 2008–2009 with an alternative scenario where food and fuel prices are 20 percent higher than in the baseline for those two years.
- Assumptions: countries draw on international reserves to cover additional import costs; no policy or behavioral responses; zero elasticity in import volumes.
- Key table-level counts (scenario: 20 percent higher prices; “high-impact” defined as loss of reserves >0.5 months of imports; “low” reserves if coverage falls or remains below 3 months):
  - Severe negative shocks (drop in reserves >0.5 months of imports):
    - Oil price shock: PRGF 48, MIC 33
    - Food price shock: PRGF 13, MIC 3
    - Combined shock: PRGF 42, MIC 30
  - Positive shocks (increase in reserves):
    - Oil price shock: PRGF 11, MIC 23
    - Food price shock: PRGF 30, MIC 28
    - Combined shock: PRGF 23, MIC 23
  - Countries with less-than-adequate reserves:
    - Before shocks: PRGF 30, MIC 18
    - After oil price increase: PRGF 37, MIC 26
    - After food price increase: PRGF 27, MIC 19
    - After combined shock: PRGF 37, MIC 25
  - Total Countries 7471
- Comparative magnitude: Oil imports are 2½ times larger than food imports for low-income countries and twice as large for MICs; hence oil price increases have larger balance of payments impacts given equal price increases and no behavioral or policy response.
- Selected country table excerpts (preserve exact table entries in source):
  - Examples of countries with low reserves after shocks: Grenada, Honduras, Kenya, Lao People's Dem. Rep, Niger, Solomon Islands, Zambia (specific CA percent of GDP and Reserves in months listed verbatim in tables).
  - Examples of countries with low reserves before shocks: Bangladesh, Cambodia, Congo, Dem. Rep. of, Côte d'Ivoire, Haiti, Liberia, Maldives, Vietnam (specific numbers preserved in source tables).
  - Examples of countries with reserves >3 months before and after shocks: Azerbaijan, Bolivia, Nigeria, Uzbekistan, Yemen, Republic of (specific numbers preserved).
  - MIC examples: Qatar, Seychelles, Algeria, China, Saudi Arabia, Turkmenistan (specific numbers preserved).
- Important caveats: estimates illustrative only, not country-level projections; assumptions include full financing through reserves, no policy responses, zero elasticity in import volumes, food trade composition not distinguished, varying national definitions of food baselines, omission of some correlated shocks and offsetting developments.

### Inflation and distributional effects (highlights)
- Global food price inflation almost doubled in 2007 (weighted by GDP PPP).
- Preliminary country team data through Q1 2008: median 12-month food inflation for 120 non-OECD countries rose from 10 percent at end-2007 to 12 percent at end-March 2008; median fuel inflation rose from 6.7 percent to 9 percent.
- Countries with strong accelerations in inflation (increase in 12-month rate since end-2007) include Ethiopia 13.9 (March); Vietnam 12.6 (May); Ukraine 9.6 (March); Jordan 9.7 (April); Pakistan 8.4 (April); Egypt 7.9 (April); and others listed in source.
- Box 1 distributional highlights:
  - Indirect effects of fuel price increases can be much larger than direct effects (Senegal: indirect effect nearly 3.5 times larger than direct effect; overall impact more than 50 percent higher for urban than rural households).
  - Food commodity inflation can diverge from overall food CPI (Senegal: cereal grains and milk up 27 percent on average, while overall food CPI rose 9 percent).

### Poverty impacts and vulnerable groups
- Urban poor especially affected; rural poor may be partially self-sufficient.
- Food-deficit farmers and urban poor worst affected; food-surplus farmers may not benefit due to faster pass-through of input costs than world food price gains.
- Food expenditure shares (2007, CPI-based weights): large shares in emerging and developing economies—in large emerging economies share typically exceeds 25 percent; in developing economies often above 50 percent.
- Share spent on fuel typically below 10 percent (partly reflecting high domestic fuel subsidies in some countries).
- Countries identified among most severely affected by food import price increases include Gambia, Swaziland, Mauritania, and Haiti.

### Countries’ policy responses — fiscal, monetary, trade, and social measures
- Fiscal measures observed:
  - Reductions in fuel and food taxes and tariffs.
  - Increases in universal subsidies.
  - Expansions in transfer programs.
  - Public-sector wage increases.
- Fuel taxes and pricing regimes:
  - Liberalized and automatic fuel pricing associated with higher retail prices and higher pass-through: average retail prices about 25 percent higher in liberalized/automatic regimes than in ad hoc regimes in 2007.
  - Average pass-through 2003–end-2007: 121 percent for liberalized/automatic regimes versus 75 percent for ad hoc regimes.
  - Survey of 147 countries: 37 countries reported decreasing some fuel tax rates; 40 reported increasing fuel tax rates.
- Fuel price subsidies:
  - Forty-six countries reported price subsidies for 2008, almost all untargeted.
  - Projected level of these subsidies ranges up to 14.6 percent of GDP, with a median cost of 1.0 percent.
  - Five countries have universal fuel subsidies in excess of 5 percent of GDP: Turkmenistan, Yemen, Egypt, Venezuela, and Ecuador.
  - Another eight countries have subsidies in excess of 2 percent of GDP.
- Changes in fuel price subsidies (2006–2008):
  - Thirty-eight countries increased or decreased fuel subsidies: Increases in 29 countries ranging from near zero to 4.0 percent of GDP; median increase 0.7 percent. Decreases in 9 countries ranging from 0.2 to 5.3 percent of GDP; median decrease 0.6 percent.
- Changes in food taxes and tariffs:
  - Eighty-four countries reported reducing food taxes.
  - Food import taxes decreased in 76 countries; VATs decreased in 22 countries.
  - Thirty-one countries reported tax decreases between 2006 and 2008 that ranged from near zero to 1.1 percent of GDP, with a median cost of 0.1 percent.
  - At least 30 countries imposed export restrictions or bans on agricultural commodities, especially rice.
- Food price subsidies:
  - 28 countries have food subsidies; almost all current food price subsidies are universal.
  - Six countries—Burundi, Egypt, Jordan, the Maldives, Morocco, and Timor-Leste—have subsidies expected to exceed 1 percent of GDP in 2008; each increased their universal subsidies since 2006.
  - Sixteen other countries reported increasing food subsidies; increases ranged from near zero to 2.7 percent of GDP, median 0.2 percent.
- Targeted transfers and transfer programs:
  - Targeted transfer programs preferred because they reach the poor more efficiently and avoid distorting incentives.
  - Most prevalent are school lunch programs, public works, conditional cash transfers.
  - Fifty-six countries reported targeted transfer programs for 2008 with projected outlays ranging up to 4.8 percent of GDP.
  - Changes in transfer program outlays since 2006 ranged from -2.1 to 2.0 percent of GDP: Seven countries reduced program size (median decrease 0.2 percent of GDP); Thirty-nine expanded programs (median increase 0.2 percent of GDP).
- Other public sector measures:
  - Ten countries increased public sector wages; fiscal cost ranged from near zero to 1.9 percent of GDP; median cost 0.6 percent.
  - Ad hoc increases in public wages/pensions are not well targeted.

### Policy guidance and efficiency considerations (Fund advice preserved verbatim where quoted)
- Fiscal policy guidance:
  - Higher global commodity prices should generally be passed through to consumers and producers to promote efficiency and sound fiscal policy, but this can have significant poverty effects requiring mitigation.
  - Less than full pass-through and/or other fiscal measures to mitigate impact typically result in fiscal costs that need careful assessment.
  - Consumption tax decreases and universal price subsidies:
    - Are not well targeted.
    - Result in overconsumption.
    - May be difficult to reverse.
  - Public-sector wages should be adjusted only in line with private-sector wages.
  - Strengthen targeted transfer programs as part of the social safety net.
  - Countries should balance financing and adjustment according to country-specific conditions:
    - Some countries can loosen fiscal positions to accommodate measures.
    - Others must create fiscal space or limit the size and duration of fiscal responses or seek outside assistance.
- Monetary and exchange rate guidance:
  - First-round effects of higher food and fuel prices on inflation should generally be accommodated.
  - Monetary policy should seek to avoid spillover to generalized inflation.
  - If shocks are deemed permanent, they will likely call for a real exchange rate depreciation for net importers.
- Trade policy guidance:
  - Global food markets should be kept open; restrictive policies such as export taxes and bans should be removed to maintain incentives for producers and consumers.
  - Tariff reductions can help reduce inefficient trade distortions and mitigate price increases.
  - Export restrictions are “highly distortionary” and can increase world prices further.
  - Biofuel subsidies, especially in developed countries, should be re-examined: evidence suggests first-generation biofuels "are not cost-effective and environment-friendly alternatives to carbon-based fuels."
- Social protection and sequencing:
  - Where pass-through must be partial or gradual: phase out subsidies gradually; put in place social safety nets to mitigate price-adjustment impacts on the most vulnerable; use poverty and social impact analyses when possible.
  - Replace untargeted programs with more cost-effective measures as soon as possible; build capacity around school feeding, cash transfers, fee waivers, and public works.
  - Short-term targeting improvements: geographic targeting, categories of the most vulnerable (disabled, elderly living alone), tax reductions and subsidies on products consumed mainly by the poor.
- Fiscal space options (country-specific):
  - Countries without binding debt sustainability constraints: scope to loosen fiscal positions to accommodate measures.
  - Countries with fiscal constraints: create fiscal space by increasing revenue; reducing nonproductive spending; raising borrowing in a noninflationary and sustainable way; securing higher external grants or concessional loans provided by donors.
  - Countries unable to create fiscal space should limit the size and duration of fiscal response; pass-through international prices more rapidly; strengthen and expand cost-effective safety nets.

### Role of the Fund and financing instruments
- The Fund stands ready to provide policy advice and balance of payments support, collaborating with international partners (United Nations, World Bank, FAO, UN Task Force on the Global Food Crisis).
- Fund activities:
  - Policy advice in surveillance (program reviews, Article IV reports).
  - Technical assistance on policy design and implementation (tax/tariff changes, transfer programs).
  - Financial support: quick disbursement to countries facing balance of payments gaps.
- Fund financing channels and actions:
  - Augmentation of existing PRGF arrangements (augmentations already granted for Benin, Burkina Faso, Kyrgyz Republic, Central African Republic, Haiti, Mali, and Niger as of end-June 2008; several other requests in pipeline).
  - Exogenous Shocks Facility (ESF): modifications under preparation to enable more rapid financing and streamline access.
  - New PRGF arrangements: suitable for prolonged balance of payments needs; new PRGFs with higher access recently approved for Mali and Niger.
  - Stand-By Arrangements available for middle-income countries, including draw-downs under existing precautionary arrangements.
- Financing considerations:
  - Financial support for low-income countries "requires concerted efforts by development partners" and "should preferably take the form of grants" to avoid debt sustainability risks.
  - Fund support generally limited but can be disbursed quickly and may catalyze grants and more concessional loans from others.
  - World Bank action at end-May: introduced a new $1.2 billion rapid financing facility including US$200 million in grants targeted at the vulnerable in the world’s poorest countries.

### Methodology notes, limitations, and appendices
- Ex post impact estimates (January 2007–April 2008) combine annual 2007 trade data with world price developments; assume zero elasticity.
- Ex ante baseline uses Spring 2008 WEO projections and questionnaire responses on food trade; missing food trade data estimated from World Bank WDI where possible.
- Core assumptions for modeled shocks:
  - Each country draws on central bank reserves in full to cover rising oil and food import bills.
  - Trade volumes assumed completely inelastic.
  - Net oil import bill modeled increases: 2008 by 17.9% (US$112 per barrel after revision compared to US$95 per barrel before); 2009 by 23.0% (US$116.25 per barrel after revision compared to US$94.50 before).
  - Food price in 2008 and 2009 set at 20 percent higher than projected in baseline.
  - GDP and imports projections adjusted to reflect effect of price increases.
- Important caveats emphasized: illustrative estimates only; no policy or behavioral responses assumed; zero elasticity; food trade composition not distinguished; varying national definitions of food baselines; omission of correlated shocks and offsetting developments; reserve pooling and special funds may alter relevance of reserve-based benchmarks.

*Source: _063008pdf - IMF PDF content provided.*

### Executive Summary ......................................................................................................

### Executive Summary

### Introduction
- The report provides a broad assessment of the impact of the surge in food and fuel prices on the balance of payments, budgets, prices, and poverty for a large sample of countries.
- The analysis reviews countries’ macroeconomic policy responses to date and discusses Fund advice for managing the price increases.
- Policy priorities highlighted:
  - Ensure that food and finance reaches the most affected countries as quickly as possible.
  - Include targeted and scaled-up social measures.
  - Avoid high costs in terms of macroeconomic instability or loss in future agricultural production.
- The analysis is presented as an initial assessment of a still-evolving situation; conclusions are tentative.

### High Fuel and Food Prices: Developments, Causes, and Prospects
- Recent surges reflect a confluence of factors; prices are expected to ease only gradually from recent highs and remain subject to considerable uncertainty.
- Demand-side factors:
  - Sustained global growth, especially in emerging and developing economies since 2003, has catalyzed demand for many commodities.
  - Emerging and developing economies are relatively more commodity-intensive, with rising meat consumption and household vehicle ownership.
- Supply-side and other amplifiers for oil:
  - Oil prices rose from $30 a barrel in early 2003 to around $140 by end-June (2008), some 35 percent above the earlier record high in real terms in 1979.
  - Supply response has been sluggish, leaving very low spare capacity and tight market conditions.
  - Production and distribution capacity will be slow to build up owing to soaring investment costs, technological, geological, and policy constraints.
  - Financial conditions (drop in real policy interest rates and U.S. dollar depreciation) likely contributed to rising prices earlier in the year.
  - No compelling evidence that commodities as an asset class produced a lasting impact on recent oil trends, though financial factors can have short-term effects.
- Supply-side and other amplifiers for food:
  - Production of the four major food crops has not kept up with rising demand; inventories declined to levels last seen in the early 1970s.
  - Unfavorable weather conditions led to a bad wheat harvest in 2007 for the second consecutive year.
  - Rising oil prices have boosted production costs of food commodities.
  - Rising biofuels production in advanced economies accounted for about ¾ of the increase in global corn consumption in 2006-7, pushing up corn and related crop prices.
  - Trade restrictions and export curbs (notably for rice) by several major exporters likely accounted for a substantial part of the 2008 rice price surge.
- Prospects:
  - Oil futures markets suggest gradual easing over the next five years with a wide band of uncertainty.
  - Food prices are projected to ease only gradually in the short term; a more substantial easing is expected in the medium term as harvests improve and supply responds, but the recent food price surge will take longer than usual to unwind.

### Macroeconomic Impact
- The food and fuel surges have heightened policy challenges for poverty reduction, food security, and macroeconomic stability.
- Balance of payments:
  - Adverse balance of payments effects were limited until recently but are now larger; a prolonged period with prices around or above current levels will place serious strains on many countries’ balance of payments.
- Inflation:
  - Headline inflation is rising and hurting the poor; spillovers into generalized inflation are an increasing concern.
- Fiscal balances and poverty:
  - Fiscal balances are under strain; poverty effects are adverse and widespread.

Key quantified findings from surveyed countries:
- Roughly half of the countries surveyed reported a net increase in fiscal cost stemming from measures taken in response to the price surges.
- Median annualized fiscal cost in 2007-08 was 0.6 percent of GDP.
- For about one-fifth of the countries, fiscal costs exceed 1 percent of GDP.
- The largest fiscal increases were driven by expansions in universal fuel price subsidies.

### Countries’ Policy Responses
- Fiscal measures adopted include:
  - Reductions in fuel and food taxes and tariffs.
  - Increases in universal subsidies.
  - Expansions in transfer programs.
  - Public-sector wage increases.
- Monetary and exchange rate policies:
  - Many countries have allowed the pass-through of first-round effects of food and fuel price increases.
  - Many countries have tightened monetary policy to address inflationary pressures.
  - In many cases, the exchange rate has not been a major shock absorber.
- Trade policies:
  - Several countries have used export restrictions and export taxes focused on key food commodities (e.g., rice and cereals).

Guidance on fiscal policy responses:
- Higher global commodity prices should generally be passed through to consumers and producers to promote efficiency and sound fiscal policy, but this can have significant poverty effects requiring mitigation.
- Less than full pass-through and/or other fiscal measures to mitigate impact typically result in fiscal costs that need careful assessment.
- Consumption tax decreases and universal price subsidies:
  - Are not well targeted.
  - Result in overconsumption.
  - May be difficult to reverse.
- Public-sector wages should be adjusted only in line with private-sector wages.
- Strengthen targeted transfer programs as part of the social safety net.
- Countries should balance financing and adjustment according to country-specific conditions and priorities:
  - Some countries can loosen fiscal positions to accommodate measures.
  - Others must create fiscal space or limit the size and duration of fiscal responses or seek outside assistance.

Guidance on monetary and exchange rate policy:
- First-round effects of higher food and fuel prices on inflation should generally be accommodated.
- Monetary policy should seek to avoid spillover to generalized inflation.
- If shocks are deemed permanent, they will likely call for a real exchange rate depreciation for net importers.

Guidance on trade policy:
- Global food markets should be kept open; restrictive policies such as export taxes and bans should be removed to maintain incentives for producers and consumers.
- Tariff reductions can help reduce inefficient trade distortions and mitigate price increases.

Aggregate fiscal response and financing:
- Fiscal responses have produced sizable costs in some countries, dominated by universal fuel subsidies.
- Fund financing channels referenced include PRGF arrangements (several recently augmented) and the Exogenous Shocks Facility, which is being streamlined.

### Role of the Fund
- The Fund stands ready to provide policy advice and balance of payments support, collaborating with international partners.
- Fund advice focuses on:
  - Protecting the poor without compromising macroeconomic stability and growth.
  - Enhancing effectiveness of policy responses over the medium term.
- Specific Fund advice:
  - On fiscal space to respond to fuel and food price increases.
  - On monetary and exchange rate policy to respond to price increases.
  - On trade policies to respond to the food price increase.
  - On balance of payments financing.
- The Fund emphasizes targeted social measures and cautions against policy responses that impose high macroeconomic costs or reduce future production.

*Executive Summary — IMF report*

### 9.      Higher food and fuel prices have serious macroeconomic effects throughout the

### _063008pdf - 9.      Higher food and fuel prices have serious macroeconomic effects throughout the

### Overview
- Higher food and fuel prices have adverse effects on growth, inflation, and the terms of trade, with important balance of payments repercussions.
- Analysis concentrates on PRGF-eligible and middle-income countries (MICs) and uses results from a questionnaire completed by country desks.
- The final impact of the price increases is highly dependent on policy responses (covered in subsequent sections of the source).

### Balance of Payments Impact: baseline observations
- Until recently, the large increase in world oil prices since 2003 had a relatively small macroeconomic impact on low-income countries (LICs), due to stronger exports, compression of oil import volumes, debt relief, and large capital inflows; the increase was also more gradual than earlier episodes.
- For the 33 PRGF-eligible net food-importing countries with available data, the adverse balance of payments impact of the increase in food prices during the last 16 months (from January 2007 until April 2008) is estimated at 0.5 percent of 2007 annual GDP (US$2.3 billion, or 0.2 months of 2008 imports of goods and services).
- For the 59 PRGF-eligible net oil importers in the same period, the impact of the increase in oil prices is estimated at 2.2 percent of GDP (US$35.8 billion, or 0.7 months of 2008 imports of goods and services).

### WEO-based projected changes (2007–2009) reported in source
- Spring 2008 WEO assumed oil and food price increases between 2007 and 2008 of 34.3 percent and 18.2 percent, respectively.
- Under that WEO assumption:
  - Net food import bill for the 33 net food importers projected increase between 2007 and 2008 by 0.8 percent of their 2008 GDP (US$3.9 billion, or 0.3 months of 2009 imports).
  - For the 59 net oil importers, the net oil import bill would increase by 0.9 percent of 2007 GDP (US$18.8 billion, or 0.4 months of 2009 imports).
- If food and fuel prices moderate in subsequent years as foreseen in the WEO projections, these balance of payments effects would diminish; further or more lasting price increases could produce more serious balance of payments needs.

### Methodology and scenario used for cross-country comparison
- The exercise compares the Spring 2008 WEO baseline projections for 2008 and 2009 with an alternative scenario in which food and fuel prices are 20 percent higher than in the baseline for those two years.
- For oil, the alternative scenario is conservative relative to the actual rise in oil price projections since then.
- For food, assuming prices 20 percent higher than projected is treated as a “worse case” scenario.
- Analysis assumes countries draw on international reserves to cover additional import costs from rising oil and food import prices; results report the change in reserves measured in months of imports and reserves coverage before and after the increase.
- The results are illustrative with simple assumptions: no policy or behavioral responses are assumed; zero elasticity in import volumes is assumed; different components of food trade not distinguished; no uniform definition of food baseline across countries; some correlated shocks omitted.

### Definitions and benchmarks used
- A country is considered “high impact” if the price increases lead to a “severe” reduction in coverage, i.e., by more than 0.5 months of imports of goods and services.
- A reserves level is considered “low” if coverage falls or remains below 3 months of next year’s imports of goods and services.
- Benchmarks noted as rules of thumb; less informative in dollarized economies and currency unions.

### Key quantitative findings (scenario: 20 percent higher prices)
- Oil price increase effects:
  - High-impact (loss of reserves >0.5 months): 48 PRGF-eligible countries and 33 MICs.
  - Of the 48 PRGF-eligible countries with high impact, 38 already had reserves of less than three months of imports and are net oil importers.
  - Examples of low-income high-impact, low-reserve countries after oil shock: Tonga, Togo, Sierra Leone, Eritrea, Pakistan.
  - Examples of MIC high-impact, low-reserve countries after oil shock: Jamaica, Dominican Republic, Fiji, Jordan.
- Food price increase effects:
  - High-impact: 13 PRGF-eligible countries and 3 MICs.
  - Among countries with low reserves before the price increases, 19 PRGF-eligible and 14 MICs would suffer further from the food price increase.
  - Conversely, 21 PRGF-eligible and 25 MICs would gain from higher food prices.
  - Examples of high-impact with reserves <3 months after food shock: Eritrea, Liberia, Tajikistan (LICs); Bahamas, Seychelles, Namibia (MICs).
- Combined oil and food price increase:
  - High-impact negative combined shock: 42 PRGF-eligible and 30 MICs.
  - Reserves below three months after combined shock: 37 PRGF-eligible countries and 25 MICs.
  - Of the 48 countries with low reserves before the price increases and available data, 41 see reserve coverage decrease further under combined shock.
  - Some countries gain reserve coverage above three months after the combined shock (examples): Qatar and Sudan (gain from oil), Cote d’Ivoire (net food exporter), Ecuador (net oil and food exporter).

### Table-level counts and reserve adequacy outcomes (as presented)
- Countries with severe negative shocks (drop in reserves larger than 0.5 months of imports):
  - Oil price shock: PRGF 48, MIC 33
  - Food price shock: PRGF 13, MIC 3
  - Combined shock: PRGF 42, MIC 30
- Countries with positive shocks (shock results in an increase in reserves):
  - Oil price shock: PRGF 11, MIC 23
  - Food price shock: PRGF 30, MIC 28
  - Combined shock: PRGF 23, MIC 23
- Countries with less-than-adequate reserves:
  - Before the shocks: PRGF 30, MIC 18
  - After the oil price increase: PRGF 37, MIC 26
  - After the food price increase: PRGF 27, MIC 19
  - After the combined shock: PRGF 37, MIC 25
- Total Countries7471

### Comparative magnitude and interpretation
- Oil imports are 2½ times larger than food imports for low-income countries and twice as large for MICs; therefore, given equal price increases and no behavioral or policy response, oil price increases have larger balance of payments impacts than similar food price increases.
- Aggregate historical estimates and the illustrative 20 percent scenario are generally smaller in absolute terms than the actual shock already faced by countries based on 2008 estimates cited earlier in the source.

### Important caveats and limitations (as stated)
- Estimates are illustrative and should not be considered actual country-level projections or the basis for country-specific financing needs.
- Assumptions include: full financing through reserves; no policy or behavioral responses; zero elasticity in import volumes; food trade composition not distinguished; varying national definitions of food and baselines; omission of some correlated shocks and offsetting developments (e.g., terms of trade gains for metal exporters).
- Reserve pooling and special funds (e.g., oil funds) can alter the relevance of simple reserve-based benchmarks for some economies (dollarized economies, currency unions).

*Source: _063008pdf - 9.      Higher food and fuel prices have serious macroeconomic effects throughout the (IMF PDF content provided).*

### 0.5 or more

### 0.5 or more

### B. The Impact on Inflation
- Global food price inflation (weighted by GDP in purchasing power parity terms) almost doubled in 2007.
- Food inflation by group:
  - Advanced economies: below 3 percent.
  - Developing countries: almost 10 percent.
- Exchange rate note: appreciation of the nominal exchange rate vis-à-vis the U.S. dollar during 2007 and early 2008 provided some relief from higher international prices.
- Preliminary country team data through Q1 2008:
  - Median 12-month rate of food price inflation for a sample of 120 non-OECD countries rose from 10 percent at end-2007 to 12 percent at end-March 2008.
  - Median fuel price inflation increased from 6.7 percent at end-2007 to 9 percent at end-March 2008 (an increase of 2.3 percentage points).
  - Actual 12-month inflation in March 2008 exceeded IMF staff projections for end-2008 by more than one percentage point.
- Comparison of inflation drivers:
  - For every one percent increase in food prices, overall inflation increases by 0.37 percent.
  - For every one percent increase in fuel prices, overall inflation increases by 0.07 percent.
  - Caveats: the direct impact understates fuel importance because fuel is an intermediate input; the weight of total food may overstate importance of the specific food commodities experiencing rapid price increases.
- Weights (average for 120 non-OECD countries):
  - Import composition: Food, 16; Fuel, 23; Others, 62.
  - Composition of CPI basket: Food, 37; Fuel, 7; Others, 56.

### Countries with Strong Accelerations in Inflation (increase in the 12-month rate of inflation since end-2007)
- Ethiopia: 13.9 (March)
- Vietnam: 12.6 (May)
- Ukraine: 9.6 (March)
- Jordan: 9.7 (April)
- Pakistan: 8.4 (April)
- Egypt: 7.9 (April)
- Kyrgyz Republic: 7.7 (May)
- Sri Lanka: 7.5 (May)
- Haiti: 7.0 (March)
- Tajikistan: 6.9 (April)
- Sao Tome: 6.2 (March)
- Libya: 5.8 (March)
- Mongolia: 5.5 (March)
- Suriname: 5.4 (March)
- Paraguay: 5.3 (May)
- Venezuela: 5.3 (March)
- Tonga: 5.2 (March)
- Azerbaijan: 5.1 (May)

### Box 1 — Distributional impact highlights
- Indirect effects of fuel price increases can be much larger than direct effects:
  - Senegal analysis: indirect effect nearly 3.5 times larger than direct effect; overall impact more than 50 percent higher for urban than rural households.
  - Similar patterns in Bolivia, Ghana, Jordan, Mali, and Sri Lanka (IMF Working Paper No. 06/247 cited in source).
- Food commodity inflation can diverge from overall food CPI:
  - Senegal: cereal grains and milk up 27 percent on average, while overall food CPI rose 9 percent.

### C. Impact on Poverty
- Vulnerable groups:
  - Urban poor most affected by high food and fuel prices.
  - Rural poor more likely to be at least partially self-sufficient in food supplies.
  - Food-deficit farmers and urban poor worst affected by food price inflation.
  - Food-surplus farmers may not benefit due to faster pass-through of input costs (fuel, fertilizer, transportation) than world food price gains.
- Undernourishment risk: share of undernourished could rise rapidly above the current 40 percent of total population in developing countries (as stated in source).
- Food expenditure shares (2007, CPI-based weights):
  - Large shares in emerging and developing economies: in large emerging economies the share typically exceeds 25 percent; in developing economies often above 50 percent.
  - Share spent on fuel typically below 10 percent (partly reflecting high domestic fuel subsidies in some countries).
- Countries with severe poverty impact from food import price increases (source indicates): Gambia, Swaziland, Mauritania, and Haiti identified among most severely affected.

### IV. COUNTRIES’ POLICY RESPONSES
- Policy constraints in vulnerable countries:
  - Limited access to foreign financing, low reserve cushions, high external or public debt burdens.
  - Central bank credibility can be lower, requiring extra caution in monetary policy.
  - Without increased donor aid, countries may need to: facilitate rapid adjustment via price adjustment (real depreciation and pass-through of world prices) and fiscal adjustment to offset higher fiscal costs.

### A. The Nature and Cost of Fiscal Responses to Higher Food and Fuel Prices
- Trade-off: passing world price increases to consumers reduces real incomes (hitting poor households) but encourages supply increases and demand reductions; less than full pass-through results in fiscal costs and can reverse fiscal/structural reforms.
- Best longer-term option: develop well-targeted social safety nets; implementation challenges have led countries to use less direct measures.

### Changes in Fuel Taxes and Subsidies
- Pricing regimes:
  - Liberalized and automatic fuel pricing mechanisms associated with higher retail fuel prices and higher pass-through.
  - In 2007, average retail fuel prices in countries with liberalized and automatic pricing mechanisms were about 25 percent higher than in countries that adjusted prices on an ad hoc basis.
  - Average pass-through of international prices between 2003 and end-2007: 121 percent for liberalized/automatic regimes versus 75 percent for ad hoc regimes.
- Survey of 147 countries (area department teams):
  - 37 countries reported decreasing some fuel tax rates; 40 reported increasing fuel tax rates.
  - Proportion decreasing taxes did not vary much across income groups.
  - Increases occurred primarily in high-income OECD countries (and were not in response to higher fuel prices).
  - Proportion decreasing taxes lowest in European countries and highest in Asian countries.
  - Proportion decreasing taxes lower in PRGF-eligible countries compared to other countries.
  - Oil exporters were less likely to decrease fuel taxes (possibly because taxes already low) and also less likely to increase taxes.
- Fiscal cost of fuel tax decreases in response to the run-up of oil prices:
  - Nineteen countries reported decreasing fuel tax rates with fiscal cost ranging from near zero to 1.3 percent of GDP and a median cost of 0.3 percent.
  - Examples and reversals: Niger reduced excise taxes to mitigate price increase from ad valorem taxes; Burundi and Cote d’Ivoire reversed tax decreases due to fiscal pressures.
  - Saudi Arabia example: In May 2006, Saudi Arabia lowered retail prices for gasoline and diesel from US$0.16/ltr to US$0.07/ltr resulting in foregone revenues of 1.2 percent of GDP per year (noted in the source).

### Efficiency and Targeting Considerations
- Reducing consumption tax rates and excise taxes to offset price increases is:
  - Inefficient and badly targeted.
  - Selective reductions distort consumer choices and lead to overconsumption of tax-preferred goods.
  - Reductions in excise taxes on fossil fuels undermine taxes addressing negative externalities (e.g., greenhouse gas emissions).
  - Differential VAT rates are difficult to administer and enforce; zero-rating complicates administration and enforcement.
  - Higher-income households receive a disproportionate share of benefits from tax rate reductions; tax reductions are difficult to reverse politically.
- Import tax rate reductions:
  - More benign because tariffs distort trade patterns.
  - Eliminating tariffs can have positive impact; lost revenue can be recouped later with more efficient revenue instruments.
  - Similar treatment should be applied to all sources of import for a given commodity to avoid distorting trade patterns.

### Fuel Price Subsidies
- Survey results:
  - Forty-six countries reported price subsidies for 2008, almost all untargeted.
  - Projected level of these subsidies ranges up to 14.6 percent of GDP, with a median cost of 1.0 percent.
  - Five countries have universal fuel subsidies in excess of 5 percent of GDP: Turkmenistan, Yemen, Egypt, Venezuela, and Ecuador.
  - Another eight countries have subsidies in excess of 2 percent of GDP.
  - Universal subsidies are more prevalent in MCD countries, although Iraq and Jordan have decreased their subsidies by 93 and 71 percent, respectively, since 2006.

*Italic: Source: IMF staff content from the provided PDF excerpt.*

### 40.      Thirty-eight countries increased or decreased fuel price subsidies between 2006

### _063008pdf - 40.      Thirty-eight countries increased or decreased fuel price subsidies between 2006

### Fuel Price Subsidies (2006–2008)
- Thirty-eight countries increased or decreased fuel price subsidies between 2006 and 2008 (Figure 8).
- Increases: 29 countries; range from near zero to 4.0 percent of GDP; median increase of 0.7 percent.
- Biggest increases occurred in countries with large pre-existing subsidies.
- Decreases: 9 countries; range from 0.2 to 5.3 percent of GDP; median decrease of 0.6 percent; largest decreases in countries restructuring subsidy programs.
- Universal price subsidies: distort price signals, result in over-consumption, benefits accrue primarily to higher income households, and can be costly when domestic price is frozen and world price increases.

### Changes in Food Taxes and Tariffs
- Eighty-four countries reported reducing food taxes (Appendix II, Figure 2 and Table 2).
- Tax rate reductions are most prevalent in high-income countries (owing to a suspension in import tariffs by the European Union).
- A relatively high proportion of African countries and countries with high food-import-to-GDP ratios report reducing food taxes.
- More countries reduced import duties than domestic value-added taxes (VATs):
  - Food import taxes decreased in 76 countries.
  - VATs decreased in 22 countries.
- More than two-thirds of tax cuts in low and middle-income countries occurred in the last five months, with 45 countries decreasing taxes in 2008.
- At least 30 countries have imposed export restrictions or bans on agricultural commodities, especially on rice.
- Thirty-one countries reported tax decreases between 2006 and 2008 that ranged from near zero to 1.1 percent of GDP, with a median cost of 0.1 percent (Figure 9).

### Food Price Subsidies
- Almost all current food price subsidies are universal.
- 28 countries have food subsidies.
- Six countries—Burundi, Egypt, Jordan, the Maldives, Morocco, and Timor-Leste—have subsidies expected to exceed 1 percent of GDP in 2008; each increased their universal subsidies since 2006 (Figure 10).
- Sixteen other countries reported increasing food subsidies; increases ranged from near zero to 2.7 percent of GDP, median 0.2 percent.
- Five countries reduced price subsidies since 2006; decreases ranged from 0.1 to 0.4 percent of GDP, median 0.2 percent.

### Targeted Transfers and Transfer Programs
- Targeted transfer programs are identified as preferred responses to food and fuel price increases because they can reach the poor more efficiently and avoid distorting incentives for nonpoor households.
- The most prevalent targeted transfer programs are part of countries’ social safety nets (school lunch programs, public works, conditional cash transfers).
- A total of 21 countries reported outlays on targeted social safety net programs.
- Agricultural subsidies reported in 15 countries; concerns include fiscal, efficiency, equity, and environmental grounds; recommendation to further target low-income farmers and link to agricultural productivity strategies.
- Many developed-country transfer programs have automatic mechanisms that adjust benefits with price changes (e.g., U.S. food stamp indexing).
- Fifty-six countries reported targeted transfer programs for 2008, with projected outlays ranging up to 4.8 percent of GDP.
- Changes in transfer program outlays since 2006 ranged from -2.1 to 2.0 percent of GDP (Figure 11):
  - Seven countries reduced program size; median decrease 0.2 percent of GDP.
  - Thirty-nine countries expanded programs; increases up to 2.0 percent of GDP; median increase 0.2 percent.

### Other Public Sector Measures to Offset Higher Food and Fuel Prices
- Ten countries increased public sector wages to compensate workers and pensioners.
- Fiscal cost of these increases ranged from near zero to 1.9 percent of GDP; median cost 0.6 percent.
- Costs reflect primarily increases in public sector wages and pensions; in Guyana, Kyrgyz Republic, and Azerbaijan they reflect increases in minimum public-sector wages and pensions.
- Ad hoc adjustments to public sector wages are noted as not well targeted because public servants are rarely in the lower income ranges.

### Aggregate Fiscal Cost
- Seventy-nine countries reported a net increase in fiscal cost stemming from measures responding to higher fuel and food costs.
- Increases ranged from near zero to 4.8 percent of GDP; median increase 0.6 percent (Appendix II, Figure 3).
- Ten countries reported a net increase of more than 2 percent of GDP.
- Nineteen countries had fiscal costs greater than 1 percent of GDP.
- Largest increases driven by increases in universal fuel price subsidies.
- As a percentage of total revenue plus grants, increases ranged from near zero to 22.9 percent; median 1.9 percent.
- Thirteen countries reported net decreases in fiscal cost; median decrease 0.6 percent of GDP.
  - Iraq’s decrease (fuel subsidy reform) exceeded 2 percent of GDP.
  - As percent of total revenue plus grants, decreases ranged from near zero to 4.7 percent; median 0.3 percent.
- Of the 79 countries reporting fiscal costs:
  - Thirty-nine are PRGF-eligible countries.
  - 50 are classified as vulnerable to balance of payment pressures.
- Fifty-six countries reported targeted transfer programs for 2008 with projected outlays up to 4.8 percent of GDP and changes since 2006 from -2.1 to 2.0 percent of GDP (reiterated for emphasis).

### Monetary and Exchange Rate Policy
- Many, but not all, countries tightened monetary policy in response to inflation risks; examples of countries tightening: Ghana, Egypt, Pakistan, and Sri Lanka.
- Concern: first-round effects of higher food and fuel prices should not spill over to second-round inflation.
- Movements in nominal exchange rates can help cushion balance of payments impact.
- Currency unions or fixed exchange rate regimes cannot use exchange rate as shock absorber (e.g., Caribbean, West- and Central Africa).
- CFA franc-zone peg to the euro shielded these countries from increase in U.S. dollar price of food and oil because of euro appreciation vs. U.S. dollar over the past one and a half years.
- Three groups of countries described with exchange rate behavior (Table 3):
  - Turnarounds (9 countries): depreciation vs. U.S. dollar during first 4 months of 2008 following appreciation during 2007; median 2007 appreciation 11.4; 4 mo. 2008 change -3.4; turnaround -14.0; baseline reserves median 4.5 months of imports; shocks effect median -0.8 months of imports.
  - Ongoing depreciations (9 countries): ongoing depreciation vs. U.S. dollar; median 2007 -4.6; 4 mo. 2008 -1.0; sum -5.5; baseline reserves median 2.7 months of imports; shocks effect median -0.5 months of imports.
  - Stable exchange rates in high-impact countries (11 countries): continued stabilizing vs. U.S. dollar; median 2007 -0.5; 4 mo. 2008 0.1; sum -0.2; baseline reserves median 2.6 months of imports; shocks effect median -1.0 months of imports.
- Memorandum item: Change in US$/euro rate (percent): 11.8, 5.6, 17.4 (columns not further specified).

### Role of the Fund and Fund Advice on Fiscal Space
- The Fund is working with national and international partners (United Nations, World Bank, FAO, UN Task Force on the Global Food Crisis) to coordinate responses; a comprehensive Framework for Action (CFA) has been prepared by the UN Task Force.
- The World Bank Group announced a New Deal on Global Food including safety nets, increased agricultural production, analysis of biofuels, and trade action.
- The Fund is conducting extensive analytical work on dimensions of price increases to diagnose sources, severity, duration, and impact, and is providing advice, technical assistance, and financial assistance (see Box 2).
- Financing: useful and sustainable only if shocks are temporary or as transitory easing of adjustment burden; for permanent shocks, adjustment is appropriate.
- For countries with high debt burdens, financing should be grants or highly concessional loans to avoid unsustainable debt positions.
- Box 2: IMF support includes:
  - Policy advice in surveillance (program reviews, Article IV reports) on fiscal space, monetary and exchange rates, trade policies.
  - Technical assistance on policy design and implementation (tax/tariff changes, transfer programs).
  - Financial support: quick disbursement to countries facing balance of payments gaps, with instruments reflecting country-specific needs.
- Fund advice on fiscal space: promote efficiency and avoid negative spillovers by passing commodity prices through to consumers and producers:
  - Full pass-through allows correct price signals, enhances allocative efficiency, shields public finances from excessive costs and volatility, and mitigates volatility in world prices.
  - Full pass-through can cause significant drops in real household incomes, especially for low-income households, which should be addressed through mitigating measures as appropriate.

*Italic: Source: _063008pdf - 40.      Thirty-eight countries increased or decreased fuel price subsidies between 2006 (IMF PDF content provided).*

### 65.      In some countries where fuel and food prices have been kept artificially low, the

### _063008pdf - 65.      In some countries where fuel and food prices have been kept artificially low, the

### Subsidy phase-out and social safety nets
- Where fuel and food prices have been kept artificially low, substantial gaps with world prices "may be difficult to eliminate quickly because of social considerations."
- Recommended approach when pass-through must be partial or gradual:
  - Phase out subsidies gradually.
  - Put in place social safety nets to mitigate price-adjustment impacts on the most vulnerable.
  - Use poverty and social impact analyses, whenever possible, to identify vulnerable groups and design offsetting measures.
- If pass-through is partial or gradual, "adverse budget and debt impacts may need to be addressed through compensating fiscal measures."

### Protecting vulnerable groups — efficiency and targeting of measures
- Policy objective: "protect the poor and other vulnerable groups from higher prices with minimum disruption of food and fuel markets."
- Fund advice is based on efficiency, effectiveness, and fiscal considerations.
- Mitigating measures and assessments:
  - Targeted transfer programs (preferably part of an integrated social safety net):
    - Can reach the poor efficiently and effectively.
    - Implementation can be challenging; conditional cash transfer programs require time, planning, targeting, and delivery capacity.
    - Expanding targeted food distribution or school lunch programs can be effective.
    - Agricultural subsidy programs can help if carefully designed and focus on increasing the productivity of small farmers.
  - Tariff reductions:
    - "Mitigate price increases" and reduce inefficient trade distortions.
    - Evidence suggests tariffs are likely to be less effective than targeted transfers at protecting the poor.
  - Consumption tax decreases and universal price subsidies:
    - "More problematic" — badly targeted, distort consumer choices, result in over consumption, are difficult to reverse, and engender administration and enforcement problems.
    - Subsidies on products consumed mainly by the poor can increase the share of benefits going to poor households but also distort price signals.
    - Studies show "fuel subsidies are a very costly way to protect the poor in developing and emerging-market economies."
  - Ad hoc general increases in public sector wages:
    - "Not well targeted" because public servants are rarely in the lower ranges of the income distribution.
  - Export restrictions:
    - "Highly distortionary" and reduce gains from higher export prices; they provide perverse incentives and can increase world prices further.

### Replacing untargeted measures and building capacity
- Some countries implemented universal measures because they allow a quicker response; these countries "should assess the efficiency of the measures as soon as possible and replace untargeted programs with more cost-effective measures."
- In countries without effective safety nets, identify a package building on existing programs:
  - Examples: school feeding programs, cash transfers to the most vulnerable populations, reduction in education and health fees, public transport subsidies.
- Short-term targeting improvements through simple methods focusing on:
  - (i) geographic characteristics of the poorest regions;
  - (ii) categories of the most vulnerable populations such as the disabled and elderly living alone;
  - (iii) tax reductions and subsidies to products consumed mainly by the poor.
- Universal subsidies can be gradually withdrawn as safety-net design, targeting, and coverage are developed, accompanied by a public information campaign to secure political support.

### Fiscal policy: accommodating costs and creating fiscal space
- The Fund can help governments assess mitigating measures, their cost, and fiscal policy options to accommodate costs without prejudice to sustainability.
- Fiscal outcomes even for efficient responses can be costly and must be assessed; options depend on country macroeconomic conditions and capacity to create fiscal space.
- Country-specific guidance:
  - Countries without binding debt sustainability, financing, or macro-stability constraints: "have scope to loosen their fiscal positions to accommodate the costs of measures taken in response to higher fuel and food prices."
  - In countries with fiscal constraints: create fiscal space to offset fiscal costs without jeopardizing sustainability or stability. Fiscal space can be created by:
    - increasing revenue;
    - reducing nonproductive spending;
    - raising borrowing in a noninflationary and sustainable way;
    - securing higher external grants or concessional loans provided by donors.
  - Countries that find it difficult to create fiscal space should:
    - limit the size and duration of the fiscal response;
    - pass-through increases in international prices to domestic consumers more rapidly;
    - strengthen and expand cost-effective social safety nets to the extent possible.

### Monetary and exchange rate policy
- First-round effects of higher food and fuel prices on inflation "should generally be accommodated" to allow relative prices to change without forcing a decline in nontraded goods prices.
  - If inflation objectives are missed, central banks should explain that achieving objectives would require an overly contractionary stance and lead to unnecessary output losses.
  - In countries with recent formal inflation targeting or where credibility is not established, balance risk of output losses from tightening against risk to credibility from missed inflation objectives.
- Monetary policy should be sufficiently tight to prevent first-round effects from spilling over to "second-round effects" (wider inflation via expectations and wage-price spirals), especially where inflation has been rising due to overly expansionary policies.
- Exchange rate guidance:
  - If shocks are regarded as permanent, net importers face a need for real effective exchange rate depreciation.
  - For countries with more open capital accounts, allowing depreciation may appear inconsistent with tightening; however, tightening can increase the odds that real depreciation occurs through lower inflation rather than nominal depreciation.
  - In some net-importing countries, depreciation may rapidly feed into higher domestic food prices and have limited moderating effects on the trade deficit; where supply response is undersized and imports are concentrated in oil, food, and donor-funded goods, there may be a strong case for short-term mobilization of concessional financing to cushion price increases.
  - Countries in currency unions or with full dollarization cannot act on the nominal exchange rate; for them, fiscal adjustment to facilitate external adjustment and offset subsidy increases is "clearly heightened."

### Trade policy
- Global food markets need to be kept open; restrictive trade policies (export bans or export taxes by net food exporters) tend to:
  - have unintended negative domestic and global consequences;
  - push up world prices further and hurt net importers.
- Priority: maintain free trade in commodities while fostering production incentives and using efficient policies to protect the urban poor (e.g., targeted cash transfers).
- An ambitious Doha Round conclusion, including on agriculture, can help broaden and stabilize international food trade and foster efficient agricultural production in the medium and long term.
- Tariff reductions can alleviate food price pressures and improve efficiency, but many poor countries rely on tariffs for revenue; revenue loss needs to be accommodated without destabilizing macroeconomic policies.
- Subsidies or price controls create trade distortions and pressures for smuggling; maintaining domestic prices below world levels through untargeted subsidies or export restrictions incentivizes evasion.
- Biofuel subsidies, especially in developed countries, should be re-examined:
  - Evidence suggests first-generation biofuels "are not cost-effective and environment-friendly alternatives to carbon-based fuels."
  - Less ambitious, more trade-friendly biofuels policies would lower pressure on food prices by reducing competition between biofuels and food for land and resources.

### Balance of payments financing and Fund facilities
- Fund financial support has begun; financial support for low-income countries "requires concerted efforts by development partners" and "should preferably take the form of grants" to avoid debt sustainability risks.
- World Bank action at end-May:
  - introduced a new $1.2 billion rapid financing facility to address immediate needs, including US$200 million in grants targeted at the vulnerable in the world’s poorest countries.
- Fund support characteristics:
  - Generally limited but can be disbursed quickly and may catalyze grants and more concessional loans from others.
  - Channels for Fund balance of payments support include:
    - Augmentation of existing PRGF arrangements:
      - More than half of the vulnerable countries already have a PRGF arrangement in place.
      - Augmentation provides a vehicle for covering unexpected balance of payments financing needs.
      - As of the end of June 2008, augmentations have been granted for Benin, Burkina Faso, the Kyrgyz Republic, the Central African Republic, Haiti, Mali, and Niger, and several other requests are in the pipeline.
    - Exogenous Shocks Facility (ESF):
      - Can provide quick access to concessional support for low-income countries facing short-term, shock-related financing needs.
      - Modifications are under preparation to enable more rapid financing and streamline access requirements.
    - New PRGF arrangements:
      - Suitable for countries with prolonged balance of payments needs linked to shocks; new PRGF arrangements with higher access were recently approved for Mali and Niger.
    - Stand-By Arrangements:
      - Available for middle-income countries, including draw-downs under existing precautionary arrangements.
- Scope of Fund financing will be guided by evolving external conditions; staff estimates of financing needs will be re-visited regularly and take into account other forms of external support (in-kind food relief, bilateral grants, regional and multilateral development bank funds).

### Appendix I — Estimating balance of payments impacts: underlying assumptions (ex post and ex ante)
- Ex post impact estimates (January 2007 to April 2008):
  - Combined annual 2007 trade data with world price developments.
  - Used food and oil trade value data reported for 2007 as a basis to estimate a monthly starting value for January 2007 and to identify net oil/food importers.
  - To derive impacts since then, calculated the sum of estimated values for the following 16 months (applying the price index) and deducted a hypothetical counterfactual assuming stable prices.
  - Assumed zero elasticity.
- Ex ante baseline:
  - Area departments’ projections for the Spring WEO and questionnaire responses on food trade constituted the baseline.
  - For oil trade data, included only major revisions since the spring WEO submission (examples: Mauritania, Tunisia, and Vietnam were forecasted to become net oil importers rather than net oil exporters in 2008 shortly after the WEO release).
  - Missing food trade data were estimated where possible based on World Bank World Development Indicators.
  - Broad assumptions where data were poor:
    - unchanged reserves accumulation or draw down of reserves in 2009 even if 2008 has been updated by country desks;
    - a fixed volume share of food items in exports and imports of goods and services for countries where projections were not available.

*Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/np/pp/eng/2008/_063008pdf.pdf*

### 84.      We estimate a hypothetical impact of a further increase in oil and food prices on

### _063008pdf - 84.      We estimate a hypothetical impact of a further increase in oil and food prices on

### Methodology and core assumptions
- Each country is assumed to draw on its central bank reserves to cover in full a rising oil and food import bill; other policy responses (donor support, fiscal adjustment, exchange rate depreciation) are abstracted from.
- Trade volumes are assumed completely inelastic to oil and food price changes.
- Net oil import bill assumed changes (corresponding to latest WEO revisions):
  - In 2008 the bill is modeled to increase by 17.9% (US$ 112 per barrel after revision compared to US$95 per barrel before).
  - In 2009 the bill is modeled to increase by 23.0% (US$ 116.25 per barrel after revision compared to US$ 94.50 before).
- Food price increase assumption:
  - Price in 2008 and 2009 set at 20 percent higher than projected in the baseline.
  - No differentiation by food-item components; no adjustment for cross-country differences in definition of food items.
- GDP and imports projections, which serve as denominators for presented indices, are adjusted to reflect the effect of the price increases.
- Potentially offsetting or aggravating developments from correlated price increases are not included.

### Modeled shocks and presentation metrics
- Shocks reported for each country under four scenarios: Before Shock, Oil price shock, Food price shock, Combined shock.
- Two primary presentation metrics in tables:
  - CA in percent of GDP (denoted "2 in percent of GDP").
  - Reserves in months of next year's imports of goods and services (denoted "3 in months of next years' imports of goods and services").

### Selected country impacts (examples taken verbatim from tables)
- 10 Countries with low reserves after the upward revision in fuel prices (examples):
  - Grenada: Before Shock -32.4, Reserves 3.2; Oil price shock -34.6, Reserves 2.4; Food price shock -33.0, Reserves 2.9; Combined shock -35.3, Reserves 2.1
  - Honduras: Before Shock -9.0, Reserves 3.2; Oil price shock -11.3, Reserves 2.5; Food price shock -8.5, Reserves 3.3; Combined shock -10.9, Reserves 2.6
  - Kenya: Before Shock -3.8, Reserves 3.0; Oil price shock -5.5, Reserves 2.0; Food price shock -4.5, Reserves 2.6; Combined shock -6.1, Reserves 1.7
  - Lao People's Dem. Rep: Before Shock -15.5, Reserves 3.5; Oil price shock -16.6, Reserves 3.0 (table truncates thereafter)
  - Niger: Before Shock -14.0, Reserves 3.3; Oil price shock -15.1, Reserves 2.7; Food price shock -13.7, Reserves 3.4; Combined shock -14.8, Reserves 2.8
  - Solomon Islands: Before Shock -13.9, Reserves 3.3; Oil price shock -15.6, Reserves 2.8; Food price shock -14.7, Reserves 3.0; Combined shock -16.5, Reserves 2.5
  - Zambia: Before Shock -3.9, Reserves 3.3; Oil price shock -5.1, Reserves 2.5; Food price shock -3.9, Reserves 3.2; Combined shock -5.1, Reserves 2.5
- 3 Countries with low reserves after upward revision in both fuel and food prices:
  - Cape Verde: Before Shock -12.8, Reserves 3.7; Oil price shock -15.0, Reserves 3.2; Food price shock -14.6, Reserves 3.3; Combined shock -16.7, Reserves 2.7
  - Mongolia: Before Shock -17.6, Reserves 4.4; Oil price shock -21.0, Reserves 3.1; Food price shock -18.7, Reserves 3.9; Combined shock -22.1, Reserves 2.7
  - Senegal: Before Shock -11.1, Reserves 3.8; Oil price shock -12.0, Reserves 3.2; Food price shock -12.1, Reserves 3.2; Combined shock -13.1, Reserves 2.7
- 30 Countries with low reserves before the upward revision (selected examples preserve exact table entries):
  - Bangladesh: Before Shock -0.7, Reserves 2.4; Oil price shock -1.7, Reserves 1.9; Food price shock -1.1, Reserves 2.2; Combined shock -2.0, Reserves 1.7
  - Cambodia: Before Shock -6.2, Reserves 2.9; Oil price shock -9.3, Reserves 2.0; Food price shock -5.5, Reserves 3.1; Combined shock -8.6, Reserves 2.2
  - Congo, Dem. Rep. of: Before Shock -24.6, Reserves 0.1; Oil price shock -24.7, Reserves 0.1; Food price shock -25.7, Reserves -0.3; Combined shock -25.9, Reserves -0.3
  - Côte d'Ivoire: Before Shock -0.5, Reserves 2.7; Oil price shock 1.1, Reserves 3.1; Food price shock 1.7, Reserves 3.9; Combined shock 3.2, Reserves 4.2
  - Haiti: Before Shock -2.5, Reserves 2.7; Oil price shock -4.1, Reserves 1.9; Food price shock -3.7, Reserves 2.1; Combined shock -5.3, Reserves 1.3
  - Liberia: Before Shock -36.2, Reserves 1.1; Oil price shock -41.3, Reserves 0.3; Food price shock -40.2, Reserves 0.4; Combined shock -45.2, Reserves -0.4
  - Maldives: Before Shock -19.2, Reserves -2.3; Oil price shock -22.5, Reserves -3.0; Food price shock -17.4, Reserves -1.8; Combined shock -20.6, Reserves -2.5
  - Vietnam: Before Shock -11.9, Reserves 2.3; Oil price shock -11.9, Reserves 2.2; Food price shock -10.1, Reserves 2.6; Combined shock -10.2, Reserves 2.6
- 22 Countries with reserves covering more than three months of imports before and after shocks (selected examples):
  - Azerbaijan, Rep. of: Before Shock 39.2, Reserves 6.9; Oil price shock 46.7, Reserves 16.6; Food price shock 39.1, Reserves 6.8; Combined shock 46.6, Reserves 16.5
  - Bolivia: Before Shock 8.6, Reserves 16.5; Oil price shock 8.3, Reserves 16.1; Food price shock 8.6, Reserves 16.5; Combined shock 8.4, Reserves 16.1
  - Nigeria: Before Shock 5.7, Reserves 15.5; Oil price shock 11.3, Reserves 19.5; Food price shock 5.2, Reserves 15.0; Combined shock 10.9, Reserves 19.1
  - Uzbekistan: Before Shock 20.8, Reserves 17.5; Oil price shock 20.8, Reserves 17.5; Food price shock 21.0, Reserves 17.8; Combined shock 21.0, Reserves 17.8
  - Yemen, Republic of: Before Shock 0.9, Reserves 9.2; Oil price shock 3.4, Reserves 10.4; Food price shock 0.2, Reserves 8.7; Combined shock 2.8, Reserves 9.9

- MICs (Table 1.b) selected results (preserve exact table entries):
  - Qatar: Before Shock 40.7, Reserves 2.5; Oil price shock 48.5, Reserves 9.4; Food price shock 40.5, Reserves 2.3; Combined shock 48.3, Reserves 9.3
  - Seychelles: Before Shock -41.4, Reserves 1.0; Oil price shock -42.2, Reserves 0.9; Food price shock -44.4, Reserves 0.5; Combined shock -45.3, Reserves 0.4
  - Algeria: Before Shock 20.6, Reserves 41.0; Oil price shock 28.5, Reserves 48.2; Food price shock 19.8, Reserves 40.5; Combined shock 27.8, Reserves 47.6
  - China: Before Shock 10.0, Reserves 17.6; Oil price shock 9.4, Reserves 16.9; Food price shock 10.0, Reserves 17.6; Combined shock 9.4, Reserves 16.9
  - Saudi Arabia: Before Shock 24.0, Reserves 26.8; Oil price shock 32.7, Reserves 32.8; Food price shock 23.6, Reserves 26.6; Combined shock 32.4, Reserves 32.6
  - Turkmenistan: Before Shock 28.1, Reserves 38.7; Oil price shock 31.0, Reserves 41.0; Food price shock 27.8, Reserves 38.6; Combined shock 30.8, Reserves 40.8

- Notes included in tables:
  - "Severe shocks are highlighted in yellow (drop in reserves superior to 0.5 months of imports)."
  - Footnotes: "For some countries, projections and data may have changed significantly since the Spring 2008 WEO submission (e.g. Tonga)."

### Fiscal response: survey coverage and key summary figures
- Survey requested nature and cost of tax and expenditure policy responses to higher fuel and food prices.
- Responses with quantification of fiscal costs received from 146 countries.
- Cross-checking: World Bank survey of its country economists used to cross-check IMF country team responses.
- Follow-up: FAD staff followed up with all country teams where clarification was necessary (over half of responding country teams); replies were received from almost all follow-ups and updated information is being incorporated when received.

- Aggregate survey response rates by Area Department (table entries preserved exactly):
  - Total Number: AFR 44, APD 32, EUR 45, MCD 32, WHD 34, Total 187
  - Submission received: AFR 44, APD 24, EUR 42, MCD 31, WHD 31, Total 172
  - (percent) 100% (AFR), 75% (APD), 93% (EUR), 97% (MCD), 91% (WHD), 92% (Total)
  - Submission with fiscal data: AFR 44, APD 24, EUR 32, MCD 27, WHD 31, Total 158
  - Quantitative information: AFR 43, APD 20, EUR 26, MCD 27, WHD 30, Total 146
  - Quantitative data on food: AFR 39, APD 17, EUR 20, MCD 24, WHD 27, Total 127
  - Quantitative data on fuel: AFR 39, APD 18, EUR 20, MCD 22, WHD 25, Total 124
  - Quantitative data on subsidies: AFR 24, APD 14, EUR 8, MCD 20, WHD 17, Total 83
  - Quantitative data on transfers: AFR 16, APD 9, EUR 7, MCD 12, WHD 17, Total 61
  - Quantitative data on other spending: AFR 21, APD 11, EUR 12, MCD 19, WHD 14, Total 77

### Tables and figures referenced (content preserved as presented)
- Appendix II: Fiscal Response Figures and Tables:
  - Figure 1. Fuel Tax Rate Changes Since 2006 (legend entries: No change; Increase; Decrease; Both increase & decrease; No data)
  - Figure 2. Food Tax Rate Changes Since 2006 (same legend categories)
  - Figure 3. Fiscal Impact of Tax Decreases and Spending Program Changes (as a percent of GDP) (legend ranges: -7.4 to 0.0; 0.0 to 1.0; 1.0 to 2.0; 2.0 to 4.8; No data)
- Table 1. Pattern of Fuel Tax Decreases by Tax and Country Characteristics (table preserves counts by tax type, year, income group, IMF department, net oil trade balance; sample totals included in original table: "All Countries 159 181 30 16 24 26 37 23")
- Table 2. Pattern of Food Tax Decreases by Tax and Country Characteristics (table preserves counts by tax type, year, income group, IMF department, net total food trade balance, net cereal trade balance; sample totals included in original table: "All Countries 159 76 22 31 49 45 84 53")
- Appendix III: Survey Questionnaire and Response Quality (summary and Table 1 reproduced above)

*Source: World Economic Outlook and Staff's calculations.*

### Appendix IV

### Appendix IV

### Policy responses to food and petroleum product price increases — Food taxes and tariffs
- Import Tariffs on Food
  - Advantages:
    - Countries that have import tariffs on food can reduce or eliminate these to decrease domestic food prices.
    - Import tariffs distort trade patterns and lost revenue can be recouped using more efficient revenue raising instruments as part of a broader reform of the fiscal system.
    - Similar treatment should be applied to all sources of import for a given food in order to avoid distorting trade patterns.
  - Disadvantages:
    - Poor domestic producers can be adversely affected.
    - Higher urban income groups typically receive a relatively large share of the benefit since they consume a relatively large share of total food consumption.
    - Revenue losses need to be recouped elsewhere in fiscal system.
    - Lowering tariffs may be problematic for countries that are part of customs unions.

- VAT and Sales Taxes on Food
  - Advantages:
    - Countries with existing VAT or sales taxes on food consumption can reduce or eliminate these taxes to decrease domestic prices of food.
    - VAT exemptions are preferable to zero rating on administrative and enforcement grounds.
  - Disadvantages:
    - Revenue losses may need to be recouped using other taxes that could be more distortionary.
    - Higher income urban groups typically receive a relatively large share of the benefit.
    - Difficult to undo since so many households benefit.
    - May lead to requests for preferential tax rates for other sectors and is inconsistent with Fund advice to broaden the tax base by eliminating sectoral exemptions and preferential rates.
    - Price and revenue implications of VAT exemptions are difficult to identify when intermediate inputs are subject to VAT.

- Export taxes or quotas
  - Advantages:
    - Possible if country is an exporter of important food items.
  - Disadvantages:
    - Such taxes and quotas are highly distortionary and reduce the gains from higher prices for exports.
    - Lower prices provide perverse incentives to producers who should be encouraged to increase food production.
    - Exacerbate problem by increasing world prices further.

### Policy responses — Fuel taxes and tariffs
- Fuel Taxes (VAT, excises, import taxes)
  - Advantages:
    - Most countries (especially fuel importing countries) generate substantial indirect tax revenues through fuel taxes, especially on gasoline and diesel.
    - Reducing these taxes can lead to domestic fuel prices increasing by less than world prices.
    - Governments often directly control prices and so can enforce domestic price changes quickly.
    - Governments can adjust the mix of ad-valorem and specific taxes to mitigate the impact of increasing world prices.
  - Disadvantages:
    - Fuel taxes are typically seen as an efficient way to raise revenues and reducing them may mean that these revenues have to be financed through more inefficient tax instruments, by cutting back growth-enhancing public expenditures or pro-poor social expenditures, or through inflationary financing that has adverse growth consequences.
    - Higher fuel prices would provide the correct incentives for more efficient use of fuel, encourage lower consumption, and thus mitigate the impact of higher prices on the balance of payments.
    - For fuel exporters, lower prices redirect fuel to domestic consumption and reduce the economic gains from exporting fuel when world prices are high.
    - Higher income households receive the bulk of the benefits of lower fuel taxes since they account for the bulk of fuel consumption.

### Policy responses — Food and fuel subsidies
- Universal Food Subsidies (Including price controls)
  - Advantages:
    - May be possible if there are marketing boards, a few large domestic producers/importers, or if all consumption is imported.
    - If government has sufficient capacity to enforce passthrough of the subsidy, it will lead to an immediate decrease in the domestic price.
  - Disadvantages:
    - Higher income groups typically receive a relatively large share of the subsidy.
    - Can involve a very large fiscal cost, necessitating offsetting fiscal measures, possibly including taxes.

- Import Subsidy on Food
  - Advantages:
    - May be possible where importers are already regulated or imports are controlled by a few large suppliers.
    - May lead to an immediate decrease in food price.
  - Disadvantages:
    - Import subsidies can be highly distortionary and higher food demand exacerbates adverse terms of trade effect of higher import prices.
    - Financing subsidy bill may involve increasing other distortionary taxes.
    - Higher income groups typically receive a relatively large share of the subsidy.
    - Domestic producers lose at time when increased investment in agriculture should be encouraged.

- Targeted Food Subsidies
  - Advantages:
    - Some countries may have access to existing food subsidy programs that are targeted to low-income groups (e.g. ration programs or geographically targeted programs).
    - Increased budgetary pressures may focus attention on need to improve targeting.
    - If well targeted, a high proportion of the subsidy benefit will go to low income groups.
  - Disadvantages:
    - Can be costly if government is involved in procuring and distributing foods.
    - Require adequate capacity to design and implement well-targeted programs.
    - Alleviate current poverty, but unlikely to have any impact on future poverty through enhancing income earning opportunities.

- Fuel Subsidies
  - Observations and disadvantages:
    - Some countries sell fuel domestically at prices below import cost or the export price; this is especially true for kerosene in importing developing countries but also often true for other products in exporting countries.
    - Subsidies distort domestic fuel consumption patterns and do not provide sufficient incentives to become more energy efficient (e.g., low kerosene or diesel prices result in substantial substitution from diesel to kerosene or from gasoline to diesel).
    - For fuel importers, subsidies increase domestic fuel consumption and exacerbate the adverse impact of higher import prices on the balance of payments.
    - For fuel exporters, subsidies similarly reduce the gains from exporting at higher world prices.
    - Fuel subsidies crowd out higher priority public capital expenditures and pro-poor social expenditures.
    - The bulk of fuel subsidies accrue to higher income households that consume the bulk of total fuel consumption.
    - Low kerosene prices can result in the redirection of kerosene to the transport sector with resulting shortages, especially in poor remote rural areas.

### Policy responses — Transfer programs
- School Feeding Programs
  - Advantages:
    - Countries with existing programs can increase subsidy and expand coverage.
    - Can be well targeted if focused on public schools and primary school children.
    - Provide incentives for enrolling children in schools and can improve student participation in learning process.
  - Disadvantages:
    - Does not cover poor households without children attending schools participating in the program.
    - Can be costly if government involved in procuring and distributing foods.

- Fee Waivers
  - Advantages:
    - Countries with school registration and attendance fees or health clinic fees can reduce or eliminate these fees.
    - Eligibility can be restricted to those attending public facilities and even geographically to poorest areas.
    - Can provide incentives to attend schools and health clinics.
  - Disadvantages:
    - May result in large undercoverage of poor if these do not access education and health service facilities.
    - Poor without children do not benefit from lower school fees.

- Public Works Programs
  - Advantages:
    - Countries with existing public works programs can increase coverage and nominal wages paid.
  - Disadvantages:
    - Requires capacity to design and implement such programs and expand within short time scale.
    - A substantial amount of budget can be absorbed by administrative, managerial and input costs.
    - Typically these programs are concentrated in poorer localities and thus do not cover poor in other localities.
    - When payment is in food this can increase administrative cost of the program.
    - Not effective at targeting the working poor, disabled, or women with very young children.

- Targeted Cash Transfers
  - Advantages:
    - Some countries may be able to expand existing targeted safety net programs with broad coverage of poor.
    - The level of transfer and/or the coverage of poor households could be quickly expanded (or indexed).
    - If transfers are in cash then these may be less administratively costly to deliver and do not distort prices.
    - Transfers can be conditioned on household investments in human capital (e.g. attendance at school, training, health clinics, agricultural extension programs).
  - Disadvantages:
    - These require an administrative capacity to design and implement well targeted programs.
    - Often not easy to scale up coverage of these programs in very short term.
    - Takes time and resources to design and implement or to expand coverage.

### Other policies
- Agricultural Input Subsidies
  - Advantages:
    - Countries can subsidize the import of agricultural inputs such as fertilizer and pesticides. These are intended to stimulate domestic production of foods and reduce reliance on imports.
  - Disadvantages:
    - Typically the larger farm holders gain most from these programs and price subsidies can be fiscally costly without addressing the underlying objective of increasing agricultural productivity.

- Wage and pension adjustments
  - Observations:
    - Countries often increase minimum wages, civil service wages or state pensions where these are not automatically inflation indexed. Where they are indexed, additional adjustments are not required.
    - These policies do not typically benefit the poorest households since they typically work in the informal sector.

### Appendix V — Balance of Payments effects and Fund relations (tables)
- Table 1. Low-Reserves and High Impact Low-Income Countries and Fund Relations (as of June 26, 2008)
  - Notes:
    - 1/ Reserves coverage of less than 3 months after the oil and food price shock.
    - 2/ Change in reserves coverage by more than 0.5 months of imports as a result of either shock.
    - Two "√√" indicates high impact for both the food and fuel price shock.
    - 3/ Includes new arrangements with higher access than planned initially.

- Table 2. Low-Reserves and High Impact MICs and Fund Relations (as of June 11, 2008)
  - Notes:
    - 1/ Reserves coverage of less than 3 months after the oil and food price shock.
    - 2/ Change in reserves coverage by more than 0.5 months of imports as a result of either shock.
    - Two "√√" indicates high impact for both the food and fuel price shock.

*Appendix IV and Appendix V, _063008pdf - Appendix IV.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/np/pp/eng/2008/_063008pdf.pdf_