Measures of Fiscal Risk in Hydrocarbon-Exporting Countries
IMF Working Papers, October 30, 2012
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- Measures of Fiscal Risk in Hydrocarbon-Exporting Countries
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Bibliographic details
- Authors: Carlos Caceres, Leandro Medina
- Published: October 30, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475530162.001
Summary and main findings
- Recent relatively high levels of global oil prices have led to a significant improvement in the public finances of several hydrocarbon-exporting countries.
- Despite the increase in fiscal buffers, medium-term risks remain high.
- Fiscal vulnerabilities have increased as a consequence of the substantial spending packages implemented in recent years.
- These spending packages have raised break-even prices—that is, the price levels that ensure that fiscal accounts are in balance at a given level of spending—in these countries.
- The study develops measures of fiscal risk stemming from oil price fluctuations and provides an empirical application to hydrocarbon-exporting countries from the Middle East and North Africa region.
- It is noted that countries with large net assets and proven oil reserves are much less vulnerable to fiscal risk than is indicated by standard measures based on break-even prices.
Methodology and scope
- Analysis focuses on fiscal risk arising from oil price fluctuations.
- The study develops quantitative measures of fiscal risk tied to oil price volatility and break-even price concepts.
- Empirical application: hydrocarbon-exporting countries from the Middle East and North Africa region.
- Relevant subjects and keywords identified: Commodity price fluctuations, Commodity prices, Financial institutions, Fiscal risks, Futures, Oil prices, Prices, Public financial management (PFM), break-even, break-even price, break-even prices, breakeven price, fiscal risk, Futures, Global, Middle East, North Africa, oil price, oil prices, price of Brent, spot market, stochastic simulations, volatility.
Policy implications and recommendations
- Authorities in hydrocarbon-exporting countries should account for elevated medium-term fiscal risks despite recent improvements in fiscal positions.
- Policymakers should consider the impact of past spending packages on current break-even price levels and on fiscal vulnerability.
- Standard break-even price metrics may overstate fiscal vulnerability for countries with large net assets and proven oil reserves; policy assessments should incorporate net asset positions and reserve valuations when measuring fiscal risk.
- Measures that explicitly incorporate oil price volatility and stochastic simulations can improve the assessment of fiscal risk and guide buffer accumulation and fiscal policy design.
IMF Working Paper No. 2012/260 by Carlos Caceres and Leandro Medina, October 30, 2012.
Content in this bundle
- Annex I: Summary Tables