How to Adjust to a Large Fall in Commodity Prices

IMF How To Notes, September 27, 2016

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Resource-rich countries face highly volatile commodity revenues.
Revenue booms often lead to large spending scale-ups.
Large and persistent reductions in commodity prices can require countries to adjust their budgets to a new revenue reality.
In many cases, overall surpluses turn into large fiscal deficits when commodity prices fall.
Borrowing costs tend to rise with the fall in commodity prices.
Large fiscal adjustments often are protracted and have long-lasting impacts on growth.

Undertake fiscal adjustments that recognize the potentially protracted nature and long-lasting growth impacts of large falls in commodity prices.
Prioritize measures that stabilize budgets without unduly amplifying negative growth effects over the adjustment period.
Strengthen mechanisms to manage commodity revenue volatility to avoid unsustainable spending scale-ups during booms.
Enhance public financial management frameworks to allow timely adjustment when revenue prospects deteriorate.

Improve contingency planning and fiscal frameworks so that temporary windfalls do not translate into permanent spending increases.
Build buffers and governance arrangements that help contain spending during booms and preserve fiscal space during busts.
Focus reforms that reduce vulnerability to commodity price swings and lower the likelihood that surpluses will rapidly become large deficits.

How to Adjust to a Large Fall in Commodity Prices — Paulo A Medas, Veronique Salins, Jeff Danforth; September 27, 2016.

Fiscal Policy: How to Adjust to a Large Fall in Commodity Prices?
- Fiscal Policy: How to Adjust to a Large Fall in Commodity Prices? (Markdown version)
- Fiscal Policy: How to Adjust to a Large Fall in Commodity Prices? (PDF)