Front Matter Page
INTERNATIONAL MONETARY FUND
Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses
Prepared by the Fiscal Affairs, Policy Development and Review, and Research Departments
(In consultation with other departments)
Approved by Teresa Ter-Minassian, Mark Allen, and Simon Johnson
June 30, 2008
Contents
Executive Summary
I. Introduction
II. High Fuel and Food Prices: Developments, Causes, and Prospects
III. Macroeconomic Impact
A. Balance of Payments Impact: Identifying the High-Impact Countries
B. The Impact on Inflation
C. Impact on Poverty
IV. Countries’ Policy Responses
A. The Nature and Cost of Fiscal Responses to Higher Food and Fuel Prices
Changes in Fuel Taxes and Subsidies
Changes in Food Taxes and Subsidies
Targeted Transfers
Other Public Sector Measures to Offset Higher Food and Fuel Prices
Aggregate Fiscal Cost
B. Monetary and Exchange Rate Policy
V. Role of the Fund
A. Fund Advice on Fiscal Space to Respond to Fuel and Food Price Increases
B. Fund Advice on Monetary and Exchange Rate Policy to Respond to the Price Increases
C. Fund Advice on Trade Policies to Respond to the Food Price Increase
D. Balance of Payments Financing
Boxes
1. Country Examples of Distributional Impact of Fuel and Food Price Increases
2. IMF Support to Countries Facing Food and Fuel Price Shocks
Figures
1. Impact of an Oil Price Increase 20 percent higher than WEO's last baseline
a. PRGF-Eligible Countries
b. Middle-Income Countries
2. Impact of a Food Price Increase 20 percent higher than WEO's last baseline
a. PRGF-Eligible Countries
b. Middle-Income Countries
3. Impact of a Food and Oil Price Increase 20 percent higher than WEO's last baseline
a. PRGF-Eligible Countries
b. Middle-Income Countries
4. Median Inflation in 120 non-OECD countries (y-o-y, in percent)
5. Food and Fuel Weights in Imports and in the CPI Basket
6. Shares of Food, Beverages, and Fuel in Household Expenditure, 2007
7. Fiscal Cost of Fuel Tax Rate Reductions as a percent of GDP
8. Change in Fuel Price Subsidies as a percent of GDP: 2006 to 2008
9. Fiscal Cost of Food Tax Rate Reductions as a percent of GDP
10. Change in food Price Subsidies as a percent of GDP: 2006 to 2008
11. Change in Transfer Program Outlays as a percent of GDP: 2006 to 2008
Tables
1. Number of Countries Affected by Food and Oil Price Increases
2. Strong Accelerations in Inflation
3. Nominal Exchange Rate Changes vis-Ã -vis the U.S. dollar and the Level and Projected Change of Reserves
Appendices
I. Estimating Balance of Payment Impacts of Food and Oil Price Increases—Underlying Assumptions
II. Fiscal Response Figures and Tables
III. The Survey Questionnaire and Response Quality
IV. Policy Responses to Food and Petroleum Product Price Increases
V. Balance of Payments Effects and Fund Relations