## Oil Prices and Public Finances: A Double-Edged Sword

_IMF Blog, April 15, 2015_

## Source details

**Canonical URL:** [Oil Prices and Public Finances: A Double-Edged Sword](https://www.imf.org/en/blogs/articles/2015/04/15/oil-prices-and-public-finances-a-double-edged-sword)

## Other formats

- [Markdown version](/en/blogs/articles/2015/04/15/oil-prices-and-public-finances-a-double-edged-sword/index.md)
- [Structured JSON version](/en/blogs/articles/2015/04/15/oil-prices-and-public-finances-a-double-edged-sword/index.json)
- [Bundle manifest](/en/blogs/articles/2015/04/15/oil-prices-and-public-finances-a-double-edged-sword/bundle-manifest.json)

## Bibliographic details
- Authors: Benedict Clements, Marta Ruiz-Arranz
- Published: April 15, 2015

---

### Overview
- Authors: Benedict Clements, Marta Ruiz-Arranz
- Date: April 15, 2015
- Key context: Oil prices have fallen about 45 percent since September (see April 2015 World Economic Outlook), producing large fiscal effects for both oil exporters and oil importers.

### Fiscal effects on oil exporters
- The decline in prices is expected to cut exporters' revenues by an average of 4 percent of GDP in 2015.
- The large revenue loss is reflected in a predicted deterioration in fiscal balances for exporters in 2015.
- Short-term mitigation options:
  - Countries with significant financial assets (net of public debt), including the Gulf Cooperation Council countries and Norway, can use those assets to mitigate the shock.
  - Some countries are allowing their currencies to weaken to partially offset lower oil revenues in foreign currency terms.
  - Given the size of the shock, most exporters will have to cut government spending to achieve a sustainable fiscal position.
- Medium- and long-term adjustments needed:
  - Boost the non-oil revenue base.
  - Improve natural resource management.
  - Improve the efficiency of government spending.
  - Strengthen fiscal frameworks to better cope with commodity price and revenue volatility.
- Note: The October 2015 Fiscal Monitor will explore fiscal framework challenges in more detail.

### Fiscal effects on oil importers
- Importers generally benefit from the decline, but with significant variation across regions.
- Fiscal effect depends on domestic energy price regulation:
  - If governments regulate domestic energy prices and leave domestic prices unchanged, the reduction in global oil prices lowers the amount governments must pay for energy subsidies, so governments keep the windfall.
  - For a typical oil importing country, about one-third of the decline in oil prices will be passed on to consumers, and two-thirds will go to governments.
  - Under this scenario, fiscal savings are expected to be about 1 percent of GDP in 2015.

### Policy recommendations and reform opportunities
- The oil price decline provides an opportunity to initiate energy subsidy and taxation reforms that would:
  - Lock in savings.
  - Improve public finances.
  - Boost long-term economic growth.
- Specific reform aims:
  - Get energy prices right to rationalize energy consumption and reduce adverse environmental effects.
  - In emerging market and developing economies, use savings from subsidy and tax reform to finance growth-enhancing spending in education, health, and infrastructure, and programs for the poor.
  - In advanced economies, reduce taxes on labor and finance the cuts with higher energy taxes.
- Best-practice implementation elements (as followed by many recent reforms):
  - Communicate the reform plan to the public.
  - Explain the benefits of reform.
  - Set up mitigating measures for the poor.

### Examples and timing
- Many countries have recently taken steps to decrease or eliminate energy subsidies, including Angola, Egypt, India, Indonesia, and Malaysia.
- More than 20 countries have recently taken such steps.
- Low inflation and low oil prices create a favorable environment for ambitious energy subsidy and energy taxation reform.

*Source: IMF blog post "Oil Prices and Public Finances: A Double-Edged Sword" (April 15, 2015) by Benedict Clements and Marta Ruiz-Arranz.*

---

## Content in this bundle

- **石油价格与公共财政：一把双刃剑; iMFdirect博客; 2015 年4 月15 日**
  - [石油价格与公共财政：一把双刃剑; iMFdirect博客; 2015 年4 月15 日 (Markdown version)](/external/chinese/np/blog/2015/041515c.pdf.md){rel="alternate" type="text/markdown"}
  - [石油价格与公共财政：一把双刃剑; iMFdirect博客; 2015 年4 月15 日 (PDF)](/external/chinese/np/blog/2015/041515c.pdf){rel="external" type="application/pdf"}
- **原油価格と財政収支:諸刃の剣; ベネディクト・クレメンツ、マルタ・ルイーズ‐アランツ iMFdirect ブログ, 2015年4月15日掲載**
  - [原油価格と財政収支:諸刃の剣; ベネディクト・クレメンツ、マルタ・ルイーズ‐アランツ iMFdirect ブログ, 2015年4月15日掲載 (Markdown version)](/external/japanese/np/blog/2015/041515j.pdf.md){rel="alternate" type="text/markdown"}
  - [原油価格と財政収支:諸刃の剣; ベネディクト・クレメンツ、マルタ・ルイーズ‐アランツ iMFdirect ブログ, 2015年4月15日掲載 (PDF)](/external/japanese/np/blog/2015/041515j.pdf){rel="external" type="application/pdf"}
- **Now Is the Time: Fiscal Policies for Sustainable Growth, Fiscal Monitor, April 2015**
  - [Now Is the Time: Fiscal Policies for Sustainable Growth, Fiscal Monitor, April 2015 (Markdown version)](/external/pubs/ft/fm/2015/01/pdf/fm1501.pdf.md){rel="alternate" type="text/markdown"}
  - [Now Is the Time: Fiscal Policies for Sustainable Growth, Fiscal Monitor, April 2015 (PDF)](/external/pubs/ft/fm/2015/01/pdf/fm1501.pdf){rel="external" type="application/pdf"}
- **Цены на нефть и государственные финансы: обоюдоострый меч**
  - [Цены на нефть и государственные финансы: обоюдоострый меч (Markdown version)](/external/russian/np/blog/2015/041515r.pdf.md){rel="alternate" type="text/markdown"}
  - [Цены на нефть и государственные финансы: обоюдоострый меч (PDF)](/external/russian/np/blog/2015/041515r.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://blog-montada.imf.org/?p=3624)
- [World Economic Outlook](http://www.imf.org/external/pubs/ft/weo/2015/01/)
- [https://www.imf.org/wp-content/uploads/2015/04/slide1.jpg](https://www.imf.org/wp-content/uploads/2015/04/slide1.jpg)
- [https://www.imf.org/wp-content/uploads/2015/04/slide21.jpg](https://www.imf.org/wp-content/uploads/2015/04/slide21.jpg)

_Source: https://www.imf.org/en/blogs/articles/2015/04/15/oil-prices-and-public-finances-a-double-edged-sword_