This paper on Colombia focuses on reforming energy pricing. Rising fiscal challenges in Colombia can risk derailing the government from their commitment to meet both its headline deficit target of 2.4 percent in 2019 and its structural deficit target by 2022, under the existing fiscal rule. The government is committed to embark on a reform strategy that aims at safeguarding the fiscal framework. Energy subsidy reform is one element of the government’s strategy to address fiscal pressures. Carefully designed reforms entail a gradual phasing out of subsidies in the case of fuel products and, in the case of electricity, an improvement in the targeting over the medium term. Illustrative simulations presented in this report highlight the fiscal and distributional impacts of different reform options. Simulations show that net fiscal gains could be achieved both for electricity and fuel products, while reducing distortions. The mission identified reform options to reduce energy subsidies while at the same time improve their targeting. The approach differs across sectors.
Energy Subsidy Reform is a key pillar of Colombia’s national development plan. Rising fiscal challenges in Colombia—which have been exacerbated by the adjustment costs associated with recent large migration flows from Venezuela—can risk derailing the government from their commitment to meet both its headline deficit target of 2.4 percent in 2019 and its structural deficit target by 2022, under the existing fiscal rule. The government is committed to embark on a reform strategy that aims at safeguarding the fiscal framework. Energy subsidy reform is one element of the government’s strategy to address fiscal pressures. It is also consistent with efforts to enhance spending efficiency and free up additional fiscal resources for development needs, in line with the recommendations made by the expert commission on spending.
International Monetary Fund. Western Hemisphere Dept.
This Article IV Consultation discusses that declining oil prices, US dollar appreciation, and limited access to international financing have worsened the fiscal, economic, and financial outlook. The focus of discussions was that despite the weak prospects there are still downside risks in the event that oil prices fall again, external financing becomes even more constrained, or confidence in the economy and the banking system begins to weaken. In the financial system, the main concern resides in a short-term risk of liquidity shortfalls, but credit quality concerns dominate over the medium term. The authorities’ policy response to the imbalances has been timely but still insufficient given the size of the shocks, the urgent nature of the vulnerabilities, and reduced foreign currency reserves. Real GDP is expected to contract significantly this year and next. In order to prevent liquidity risks in the financial system, the authorities should limit recourse to domestic financing and, as necessary, assist in a timely way banks that develop liquidity or capital shortfalls, as well as enhance crisis preparedness and contingency planning.
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper focuses on the impact of adjusting to commodity shocks in Trinidad and Tobago. With commodity resources being nonrenewable, developing a long-term strategy can help avoid unsustainable policies and ensure greater intergenerational equity. Recent country experiences highlight the benefits of precautionary buffers in smoothing fiscal adjustment process. Prudent and countercyclical fiscal policy implementation, structural reforms, and economic diversification can help contain the impact of commodity price booms and busts. Strong fiscal institutions are needed to help achieve and sustain the fiscal adjustment. Different adjustment strategies may be feasible depending on the needed size of the adjustment and country-specific circumstances. Trinidad and Tobago have faced several years of weak or negative growth on the back of terms-of-trade and energy supply shocks. A well-designed fiscal framework that considers potential uncertainties associated with commodity cycles can help improve fiscal management. Countercyclical policy implementation would help smooth the impact of commodity-induced sharp fluctuations in the economy.
The Research Summaries in this issue of the IMF Research Bulletin cover “Tax Capacity and Growth” (by Vitor Gaspar, Laura Jaramillo, and Philippe Wingender), and “U.S. Shale Revolution and Its Spillover Effects on the Global Economy” (Ravi Balakrishnan, Keiko Honjo, Akito Matsumoto, and Andrea Pescatori). The Q&A coauthored by Amadou Sy and Mariama Sow covers “Seven Questions about the Relationship between Country Finance and Governance.” A listing of recent IMF Working Papers, Staff Discussion Notes, and Recommended Readings from IMF Publications is included in the IMF Research Bulletin. Readers can also find news on free-to-view articles from IMF Economic Review and a call for conference papers in this issue of the Bulletin.
The December 2015 IMF Research Bulletin features a sampling of key research from the IMF. The Research Summaries in this issue look at “The Impact of Deflation and Lowflation on Fiscal Aggregates (Nicolas End, Sampawende J.-A. Tapsoba, Gilbert Terrier, and Renaud Duplay); and “Oil Exporters at the Crossroads: It Is High Time to Diversify” (Reda Cherif and Fuad Hasanov). Mahvash Saeed Qureshi provides an overview of the fifth Lindau Meeting in Economics in “Meeting the Nobel Giants.” In the Q&A column on “Seven Questions on Financial Frictions and the Sources of the Business Cycle, Marzie Taheri Sanjani looks at the driving forces of the business cycle and macroeconomic models. The top-viewed articles in 2014 from the IMF Economic Review are highlighted, along with recent IMF Working Papers, Staff Discussion Notes, and IMF publications.
This paper examines the relations between fluctuations in real exchange rates among the major currencies and fluctuations in real commodity prices. Increased exchange rate volatility calls for a better understanding of these relations. To the best of our knowledge, no systematic study of those effects has been performed on a wide range of commodities, although Sjaastad and Scacciavillani (1993) have done so for gold. We build on their approach and construct a supply and demand multi-country model, with world market clearing, which incorporates speculative and non-speculative demands for inventories and “static” and “rational” expectations. We estimate the model using several econometric methods on monthly data from January 1972 to January 1992 for 65 commodity prices. The paper finds that, for a small group of commodities, the dollar-denominated price is significantly influenced by the deutsche mark and the yen. The empirical results show that geographical proximity matters, and that supply and demand elasticities are important in determining the commodity price in world markets above and beyond the size of the share of those commodities in world trade.
International Monetary Fund. External Relations Dept.
This paper reviews the “significant impact” of World Bank lending for the rural poor. The paper highlights that a review of 130 World Bank lending operations has found that 94 percent of the total investments completed between 1976 and 1979 have appeared to achieve their major objectives or are well on their way to doing so. And the World Bank’s first projects for helping large numbers of poor small farmers have significantly improved farmers’ productivity and incomes. Most of the projects were launched in the 1970s.
This paper presents main characteristics of a typical oil economy. Estimates of proven oil reserves in Saudi Arabia differ widely, ranging from estimates by ARAMCO and the other companies of about 100 billion barrels to figures exceeding 150 billion barrels. In 1969, two US firms commissioned by the Saudi Arabian Government completed studies of the country's oil reserves, estimating 126.4 billion barrels for the fields surveyed. Growth of oil production in Saudi Arabia has been determined largely by exogenous factors connected with the growth of world demand for oil and fluctuations in supplies from other producing areas. Industrial and agricultural development in Saudi Arabia has been constrained by the scarcity of natural resources, other than oil. Agricultural and fishery resources can be potentially significant, but only recently have they been systematically explored. Based on a clear comparative advantage in the supply of oil and natural gas, industrial development in Saudi Arabia is proceeding from oil production and refining to petrochemicals and to other energy-intensive industries.