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Food and Energy Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries

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  • Ronald Albers
  • Marga Peeters

Abstract

Working paper, focusing on the impact of soaring commodity prices, notably for food and energy on the economy and public finances of Mediterranean neighbour countries of the EU. Just before the global crisis soaring commodity prices pushed up inflation significantly, not least in EU neighbour countries at the Mediterranean. These price shocks affected public finances in the southern Mediterranean region, notably via government subsidies. Partly due to lags in the transmission of commodity prices into prices for final users the subsidies burden continued to be felt, despite the price falls registered in the wake of the credit crisis. We show that downward price rigidities play a role. Recently, commodity price pressures have re-emerged. We focus on food prices and analyse recent developments in food inflation in Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian territories, Syria and Tunisia in comparison with other middle income economies. Subsidies on food and fuel are quantified per country for the period 2002-2010. The incremental government subsidies entail an estimated deterioration of the government balances of up to more than 2% of GDP in 2008 and, for most countries only slight improvements in the global recession year 2009. Ensuing longer-term challenges for public finances remain as inflation rises on the back of higher global economic growth. As recent events in Tunisia illustrate, these can have important political implications. Finally, the paper discusses some options that can lead to more efficient government spending, even in the event of sharp swings in prices of basic necessities.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 437.

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Length: 36 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:euf:ecopap:0437

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  1. Alex Segura-Ubiergo & Taline Koranchelian & Carlos Mulas-Granados, 2008. "Reforming Government Subsidies in the New Member States of the European Union," IMF Working Papers 08/165, International Monetary Fund.
  2. Adams, Richard H., 2000. "Self-targeted subsidies - the distributional impact of the Egyptian food subsidy system," Policy Research Working Paper Series 2322, The World Bank.
  3. Peeters, Marga & Strahilov, Kiril, 2008. "Macro-economic policy reactions to soaring food prices in Mediterranean countries, Russia, the CIS and the GCC," MPRA Paper 23860, University Library of Munich, Germany.
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Cited by:
  1. Ansgar Belke & Christian Dreger, 2013. "The Transmission of Oil and Food Prices to Consumer Prices: Evidence for the MENA Countries," Discussion Papers of DIW Berlin 1332, DIW Berlin, German Institute for Economic Research.
  2. Velez, Carlos E. & Al-Shawarby, Sherine & El-Laithy, Heba, 2012. "Equality of opportunity for children in Egypt, 2000-2009 : achievements and challenges," Policy Research Working Paper Series 6159, The World Bank.
  3. Loening, Josef L., 2011. "Middle East and North Africa Countries' Vulnerability to Commodity Price Increases," MPRA Paper 33393, University Library of Munich, Germany.
  4. Peeters, Marga & Albers, Ronald, 2011. "Food prices, government subsidies and fiscal balances in south Mediterranean countries," MPRA Paper 37707, University Library of Munich, Germany, revised 20 Mar 2012.
  5. Al-Shawarby, Sherine & Selim, Hoda, 2012. "Are international food price spikes the source of Egypt's high inflation ?," Policy Research Working Paper Series 6177, The World Bank.
  6. repec:pra:mprapa:37705 is not listed on IDEAS

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