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Looking Beyond the Fiscal; Do Oil Funds Bring Macroeconomic Stability?


  • Ghiath Shabsigh
  • Nadeem Ilahi


Oil funds have become increasingly popular in oil exporting countries during the recent surge in oil prices. However, the literature on the contribution is small, tends to focus narrowly on their fiscal benefits, and concludes that they are redundant of such funds-in other words, that well designed fiscal management and policy are adequate substitutes for oil funds. This paper argues that a broader focus is needed in judging the effectiveness of such funds. We test whether oil funds help reduce macroeconomic volatility. The econometric estimation results from a 30-year panel data set of 15 countries with and without oil funds suggest that oil funds are associated with reduced volatility of broad money and prices and lower inflation. However, there is a statistically weak negative association between the presence of an oil fund and volatility of the real exchange rate.

Suggested Citation

  • Ghiath Shabsigh & Nadeem Ilahi, 2007. "Looking Beyond the Fiscal; Do Oil Funds Bring Macroeconomic Stability?," IMF Working Papers 07/96, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/96

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    Cited by:

    1. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    2. Kamiar Mohaddes & Mehdi Raissi, 2017. "Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?," Working Papers 1106, Economic Research Forum, revised 06 Aug 2000.
    3. Yelena, Kalyuzhnova, 2011. "The National Fund of the Republic of Kazakhstan (NFRK): From accumulation to stress-test to global future," Energy Policy, Elsevier, vol. 39(10), pages 6650-6657, October.
    4. Jiří Sýkora, 2013. "Oil in Timor-Leste: A Ticket to Prosperity?," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2013(3), pages 68-85.
    5. Yves Jégourel, 2015. "Sovereign Stabilization Funds and the End of the Commodities Super-cycle: What are the Challenges?," Policy notes & Policy briefs 1523, OCP Policy Center.
    6. World Bank, 2012. "Reshaping Economic Geography of East Africa : From Regional to Global Integration (Vol. 1 of 2)," World Bank Other Operational Studies 11930, The World Bank.
    7. Tsani, Stella, 2015. "On the relationship between resource funds, governance and institutions: Evidence from quantile regression analysis," Resources Policy, Elsevier, vol. 44(C), pages 94-111.


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