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Middle East and Central Asia > Saudi Arabia

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Cover IMF Working Papers
Commodity Shocks and Exchange Rate Regimes: Implications for the Caribbean Commodity Exporters
Mr. Ali J Al-Sadiq
and
Ms. Inci Ötker
Declining commodity prices during mid-2014-2016 posed significant challenges to commodity-exporting economies. The severe terms of trade shock associated with a sharp fall in world commodity prices have raised anew questions about the viability of pegged exchange rate regimes. More recently, the COVID-19 pandemic and the measures needed to contain its spread have been associated with a significant disruption in several economic sectors, in particular, travel, tourism, and hospitality industry, adding to the downward pressure on commodity prices, a sharp fall in foreign exchange earnings, and depressed economic activity in most commodity exporters. This paper reviews country experiences with different exchange rate regimes in coping with commodity price shocks and explores the role of flexible exchange rates as a shock absorber, analyzing the macroeconomic impact of adverse term-of-trade shocks under different regimes using event study and panel vector autoregression techniques. It also analyzes, conceptually and empirically, policy and technical considerations in making exchange rate regime choices and discusses the supporting policies that should accompany a given regime choice to make that choice sustainable. It offers lessons that could be helpful to the Caribbean commodity-exporters.
Keywords:
commodity shock; commodity exporter; regime choice; Caribbean commodity-exporter; I. commodity terms-of-trade Index; Exchange rate arrangements; Exchange rate flexibility; Exchange rates; Exchange rate adjustments; Caribbean; Global; Africa
Cover IMF Working Papers
Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidenceon the Voracity Effect
Markus Bruckner
and
Mr. Rabah Arezki
This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are homogeneous. In polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.
Keywords:
WP; commodity; revenue windfall; country; Commodity Windfalls; Net Foreign Assets; Polarization; Political Economy; commodity windfall; world commodity supply; exported commodity goods lead; hydrocarbon commodity price; commodity price boom; Foreign assets; Commodity prices; Export price indexes; Private investment; Africa; Global
Cover IMF Working Papers
Macro-Hedging for Commodity Exporters
Mr. Eduardo Borensztein
,
Mr. Damiano Sandri
, and
Mr. Olivier D Jeanne
This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for commodity-exporting countries. The introduction of hedging instruments such as futures and options enhances domestic welfare through two channels. First, by reducing export income volatility and allowing for a smoother consumption path. Second, by reducing the country's need to hold foreign assets as precautionary savings (or by improving the country's ability to borrow against future export income). Under plausibly calibrated parameters, the second channel may lead to much larger welfare gains, amounting to several percentage points of annual consumption.
Keywords:
WP; strike price