Front Matter

Front Matter

Stefania Fabrizio
Published Date:
July 2012
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Strategy, Policy, and Review Department


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Managing global growth risks and commodity price shocks : vulnerabilities and policy challenges for low-income countries / a staff team led by Stefania Fabrizio.

  • —Washington, D.C. : International Monetary Fund, 2012.

  • p. ; cm.

  • At head of title: Strategy, Policy and Review Department.

  • ISBN 978-1-61635-377-3

  • 1. Economic development—Developing countries. 2. Developing countries—Economic conditions. 3. Developing countries—Economic policy. 4. Prices—Developing countries. I. Fabrizio, Stefania. II. International Monetary Fund.

HC59.7.M36 2012

Disclaimer: The views expressed in this paper are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.

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This study was prepared by a staff team led by Stefania Fabrizio and comprising Chris Geiregat, Yasemin Bal Gündüz, Katrin Elborgh-Woytek, Marco Arena, Kazuko Shirono, Julia Bersch, Svitlana Maslova, Trung Bui, and Song Song, all from the Strategy, Policy, and Review Department (SPR); Emanuele Baldacci, Thomas Baunsgaard, Alejandro Guerson, Nathaniel Arnold, Javier Kapsoli, Baoping Shang, Marcos Poplawski-Ribeiro, Matias Antonio, and Oriel Fernandes, all from the Fiscal Affairs Department (FAD); Thomas Helbling, Roberto Garcia-Saltos, Felipe Zanna, Rafael Portillo, Joong Shik Kang, Patrick Blagrave, Enrico Berkes, David Reichsfeld, Marina Rousset, and Stephen Snudden, all from the Research Department (RES); Domenico Fanizza, Chris Lane, Olumuyiwa Adedeji, Alun Thomas, and Darlena Tartari, all from the African Department; Brian Aitken, Yasuhisa Ojima, Boriana Yontcheva, and To-Nhu Dao, all from the Asia and Pacific Department. General guidance was provided by Hugh Bredenkamp and Christian Mumssen (both SPR), Sanjeev Gupta (FAD), and Andrew Berg and Jonathan Ostry (RES). Merceditas San Pedro-Pribram (SPR) and Joanne Blake, Michael Harrup, and S. Alexandra Russell (External Relations Department) managed the production of the publication.

Acronyms and Abbreviations


Asia and the Pacific


change in fiscal balance


dynamic stochastic general equilibrium


Exchange Market Pressure Index


Fiscal Affairs Department


foreign direct investment


fiscal space


Global Integrated Monetary and Fiscal


Global Projections Model


low-income countries


primary balance


Poverty Reduction and Growth Trust


revenue growth


Sub-Saharan Africa


value-added tax


World Economic Outlook


As part of its work to help low-income countries1 manage volatility, the IMF has recently developed an analytical framework to assess vulnerabilities and emerging risks that arise from changes in the external environment (see IMF, 2011a). This report draws on the results of the first Vulnerability Exercise for LICs conducted by IMF staff using this new framework. The report focuses on the risks of a downturn in global growth and of further global commodity price shocks, and discusses related policy challenges.

The report is organized as follows: Chapter 1 reviews recent macroeconomic developments, including the spike in global commodity prices earlier this year. Chapter 2 assesses current risks and vulnerabilities, including how a sharp downturn in global growth and further commodity price shocks would affect low-income countries. Chapter 3 discusses policy challenges in the face of these risks and vulnerabilities.

The set of low-income countries referred to in this paper consists of the group of 70 countries listed in Appendix 1. This group includes all countries eligible for concessional financing from the IMF under the Poverty Reduction and Growth Trust (except for Somalia, which has been excluded due to lack of data). Therefore, the set of countries defined in this paper as “low-income countries” may differ from classifications used in other organizations or institutions.

Key Points

  • Most low-income countries (LICs) recovered swiftly from the global crisis and have grown strongly since early 2010, with real GDP growth in 2011 projected at around 5 percent for the median LIC. The surge in global commodity prices earlier this year led to a moderate uptick in inflation in most countries.

  • However, progress in rebuilding macroeconomic buffers after the crisis has been slow in many LICs, partly reflecting recent measures adopted to mitigate the social impact of the recent price spikes. As a result, LICs are now less well prepared to deal with external shocks than they were prior to the crisis.

  • There are now severe downside risks to the global outlook, and LICs are highly vulnerable to the risk of a sharp global downturn. Should this materialize, the scope for fiscal stimulus would be more limited than in 2009 for most LICs, given weaker fiscal buffers and constrained aid envelopes. However, countries with sufficient fiscal room should maintain spending levels to avoid aggravating the negative economic and social effects of the shock. In addition, in countries with moderate inflation, monetary and exchange rate policy could be used more actively to mitigate the impact of the shock. If the downturn were to persist over the medium term, further realignment of macroeconomic policies might be necessary.

  • LICs also remain vulnerable to continued commodity price volatility, given in particular the severe impact of high food prices on poverty. A pragmatic response could include targeted measures to protect the poor, fiscal space permitting, and a monetary policy response that may largely accommodate the first-round impact on inflation, although LICs with limited reserves may need to tighten policies in support of external and price stability.

  • If downside risks materialize, a large number of LICs would need additional concessional financing from the international community to help mitigate these shocks without aggravating debt vulnerabilities.

  • To build resilience against shocks over the medium term, LICs should aim to boost their revenue base and ensure the efficiency of public investment, while pursuing structural reforms to deepen the financial sector, strengthen the social safety net, and diversify the economy.

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