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Mr. Serhan Cevik and Belma Öztürkkal
This paper investigates the impact of infectious diseases on the evolution of sovereign credit default swap (CDS) spreads for a panel of 77 advanced and developing countries. Using annual data over the 2004-2020 period, we find that infectious-disease outbreaks have no discernible effect on CDS spreads, after controlling for macroeconomic and institutional factors. However, our granular analysis using high-frequency (daily) data indicates that the COVID-19 pandemic has had a significant impact on market-implied sovereign default risk. This adverse effect appears to be more pronounced in advanced economies, which may reflect the greater severity of the pandemic and depth of the ensuing economic crisis in these countries as well as widespread underreporting in developing countries due to differences in testing availability and institutional capacity. While our analysis also shows that more stringent domestic containment measures help lower sovereign CDS spreads, the macro-fiscal cost of efforts aimed at curbing the spread of the disease could undermine credit worthiness and eventually push the cost of borrowing higher.
Mr. Kangni R Kpodar, Ms. Stefania Fabrizio, and Kodjovi M. Eklou
This paper investigates the impact of domestic fuel price increases on export growth in a sample of 77 developing countries over the period 2000-2014. Using a fixed-effect estimator and the local projection approach, we find that an increase in domestic gasoline or diesel price adversely affects real non-fuel export growth, but only in the short run as the impact phases out within two years after the shock. The results also suggest that the negative effect of fuel price increase on exports is mainly noticeable in countries with a high-energy dependency ratio and countries where access to an alternative source of energy, such as electricity, is constrained, thus preventing producers from altering energy consumption mix in response to fuel price changes.
Mr. Serhat Solmaz and Marzie Taheri Sanjani
External headwinds, together with domestic vulnerabilities, have loomed over the prospects of emerging markets in recent years. We propose an empirical toolbox to quantify the impact of external macro-financial shocks on domestic economies in parsimonious way. Our model is a Bayesian VAR consisting of two blocks representing home and foreign factors, which is particularly useful for small open economies. By exploiting the mixed-frequency nature of the model, we show how the toolbox can be used for “nowcasting” the output growth. The conditional forecast results illustrate that regular updates of external information, as well as domestic leading indicators, would significantly enhance the accuracy of forecasts. Moreover, the analysis of variance decompositions shows that external shocks are important drivers of the domestic business cycle.
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper focuses on the Iraqi oil sector and analyzes the developments and prospects after the twin shock. The Iraqi economy was affected by the two major challenges during 2014—ISIS insurgency and the fall in global oil prices. Iraq’s oil sector has performed well despite the security challenges that emerged after the onset of the ISIS insurgency in June 2014. On average, Iraq earned $97 per barrel on oil exported in 2014. Asia remained the leading destination of the Iraqi oil exports during 2013–14, and its share increased from 50 percent in 2012 to 65 percent in 2014.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper examines the implications of lower crude oil prices on Malaysia’s economy. Although Malaysia’s net oil exports are now very small as a share of GDP, its gas exports are sizeable. The paper provides some background on the structure of energy production and trade in Malaysia, and presents results from empirical analysis of the oil prices on Malaysia’s growth. It is concluded that the decline in prices is likely to have a net negative impact on growth, even though the recent decline in oil prices partially reflects supply considerations.
Mr. Benedict J. Clements, Mr. David Coady, Ms. Stefania Fabrizio, Mr. Sanjeev Gupta, Mr. Trevor Serge Coleridge Alleyne, and Mr. Carlo A Sdralevich

Abstract

Los subsidios a la energía tienen consecuencias económicas de amplio alcance. A pesar de que tienen por objeto proteger a los consumidores, los subsidios agravan los desequilibrios fiscales, desplazan gastos públicos prioritarios y deprimen la inversión privada, en particular en el sector de la energía. Los subsidios también distorsionan la asignación de recursos al promover un consumo excesivo de energía, estimular artificialmente industrias que requieren un uso intensivo de capital, reducir los incentivos a la inversión en energías renovables y acelerar el agotamiento de los recursos naturales. Los hogares de mayores ingresos son en definitiva los principales beneficiarios de los subsidios, con lo cual se agudiza la desigualdad. Incluso las generaciones futuras se ven afectadas por los efectos perjudiciales de un aumento del consumo de energía a través del calentamiento global. Este libro ofrece 1) las estimaciones más completas de los subsidios a la energía disponibles en la actualidad con respecto a 176 países y 2) un análisis de cómo realizar la reforma de los subsidios a la energía, a partir de las conclusiones extraídas de 22 estudios de casos realizados por el personal técnico del FMI y de análisis llevados a cabo por otras instituciones.

Mr. Benedict J. Clements, Mr. David Coady, Ms. Stefania Fabrizio, Mr. Sanjeev Gupta, Mr. Trevor Serge Coleridge Alleyne, and Mr. Carlo A Sdralevich

Abstract

Les subventions à l'énergie ont des conséquences économiques très variées. Leur but est de protéger les consommateurs, mais elles exacerbent les déséquilibres budgétaires, évincent les dépenses publiques prioritaires et dépriment l'investissement privé, notamment dans le secteur de l'énergie. Les subventions faussent en outre l'affectation des ressources, car elles encouragent une consommation excessive d'énergie, favorisent artificiellement les industries à forte intensité de capital, réduisent les incitations à investir dans les énergies renouvelables et accélèrent l'épuisement des ressources naturelles. La plupart des avantages liés aux subventions reviennent aux ménages dont le revenu est plus élevé, ce qui accentue les inégalités. Même les générations futures sont touchées, car elles subiront les effets négatifs de l'accroissement de la consommation énergétique sur le réchauffement de la planète. Cet ouvrage offre 1) les estimations les plus exhaustives sur les subventions énergétiques en s’appuyant sur les données recueillies dans 176 pays et 2) une analyse des modalités de réforme des subventions à l'énergie qui s'inspire des conclusions de 22 études de cas nationales menées par le FMI et d'analyses entreprises par d’autres institutions.

Mr. Benedict J. Clements, Mr. David Coady, Ms. Stefania Fabrizio, Mr. Sanjeev Gupta, Mr. Trevor Serge Coleridge Alleyne, and Mr. Carlo A Sdralevich

Abstract

Energy subsidies have wide-ranging economic consequences. Although they are aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd out priority public spending, and depress private investment, including in the energy sector. Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. Most subsidy benefits are captured by higher-income households, reinforcing inequality. Even future generations are affected through the damaging effects of increased energy consumption on global warming. This book provides (1) the most comprehensive estimates of energy subsidies currently available for 176 countries and (2) an analysis of “how to do” energy subsidy reform, drawing on insights from 22 country case studies undertaken by the IMF staff and analyses carried out by other institutions.

Mr. Benedict J. Clements, Mr. David Coady, Ms. Stefania Fabrizio, Mr. Sanjeev Gupta, Mr. Trevor Serge Coleridge Alleyne, and Mr. Carlo A Sdralevich

Abstract

Energy subsidies are aimed at protecting consumers, however, subsidies aggravate fiscal imbalances, crowd out priority public spending, and depress private investment, including in the energy sector. This book provides the most comprehensive estimates of energy subsidies currently available for 176 countries and an analysis of “how to do” energy subsidy reform, drawing on insights from 22 country case studies undertaken by the IMF staff and analyses carried out by other institutions.

International Monetary Fund
This supplement presents country case studies reviewing energy subsidy reform experiences, which are the basis for the reform lessons identified in the main paper. The selection of countries for the case studies reflects the availability of data and of previously documented evidence on country-specific reforms. The 22 country case studies were also chosen to provide cases from all regions and a mix of outcomes from reform. The studies cover 19 countries, including seven from sub-Saharan Africa, two in developing Asia, three in the Middle East and North Africa, four in Latin America and the Caribbean, and three in Central and Eastern Europe and the CIS. The case studies are organized by energy product, with 14 studies of the reform of petroleum product subsidies, seven studies of the reform of electricity subsidies, and a case study of subsidy reform for coal. The larger number of studies on fuel subsidies reflects the wider availability of data and past studies for these reforms. The structure of each case study is similar, with each one providing the context of the reform and a description of the reforms; discussion of the impact of the reform on energy prices or subsidies and its success or failure; mitigating measures that were implemented in an attempt to generate public support for the reform and offset adverse effects on the poor; and, finally, identification of lessons for designing reforms.