## How to Adjust to a Large Fall in Commodity Prices

_IMF How To Notes, September 27, 2016_

## Source details

**Canonical URL:** [How to Adjust to a Large Fall in Commodity Prices](https://www.imf.org/en/publications/fiscal-affairs-department-how-to-notes/issues/2017/01/07/how-to-adjust-to-a-large-fall-in-commodity-prices-44231)

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- [Markdown version](/en/publications/fiscal-affairs-department-how-to-notes/issues/2017/01/07/how-to-adjust-to-a-large-fall-in-commodity-prices-44231/index.md)
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## Bibliographic details
- Authors: Paulo A Medas, Veronique Salins, Jeff Danforth
- Published: September 27, 2016
- Series: IMF How To Notes
- DOI: https://doi.org/10.5089/9781475536065.061

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### Key findings
- 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.

### Policy implications and recommendations
- 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.

### Preparing for future booms and busts
- 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.*

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## Content in this bundle

- **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)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/howtonotes/2016/_howtonote1601.pdf.md){rel="alternate" type="text/markdown"}
  - [Fiscal Policy: How to Adjust to a Large Fall in Commodity Prices? (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/howtonotes/2016/_howtonote1601.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/fiscal-affairs-department-how-to-notes/issues/2017/01/07/how-to-adjust-to-a-large-fall-in-commodity-prices-44231_