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Fiscal Policy in Oil Producing Countries During the Recent Oil Price Cycle


  • International Monetary Fund


This paper presents a detailed analysis of the average fiscal policy responses of oil producing countries (OPCs) to the recent oil price cycle. We find that OPCs worsened their non-oil primary balances substantially during 2003-2008 driven by an increase in primary spending. However, this trend was partially reversed when oil prices went down in 2009. We also find evidence that fiscal policy has been procyclical and has hence exacerbated the fluctuations in economic activity. In addition, we estimate that a small reduction in oil prices could lead to very large financing needs in the near future. Finally, we show that long-term fiscal sustainability positions in OPCs have worsened.

Suggested Citation

  • International Monetary Fund, 2010. "Fiscal Policy in Oil Producing Countries During the Recent Oil Price Cycle," IMF Working Papers 10/28, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/28

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    References listed on IDEAS

    1. Rodrigo O. Valdes & Eduardo M Engel, 2000. "Optimal Fiscal Strategy for Oil Exporting Countries," IMF Working Papers 00/118, International Monetary Fund.
    2. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
    3. Sheila Bassett & Claire Liuksila & Alejandro García, 1994. "Fiscal Policy Sustainability in Oil-Producing Countries," IMF Working Papers 94/137, International Monetary Fund.
    4. Thomas Baunsgaard, 2001. "A Primeron Mineral Taxation," IMF Working Papers 01/139, International Monetary Fund.
    5. Eifert, Benn*Gelb, Alan*Borje Tallroth, Nils, 2002. "The political economy of fiscal policy and economic management in oil exporting countries," Policy Research Working Paper Series 2899, The World Bank.
    6. Steven A Barnett & Rolando Ossowski, 2002. "Operational Aspects of Fiscal Policy in Oil-Producing Countries," IMF Working Papers 02/177, International Monetary Fund.
    7. James Daniel, 2001. "Hedging Government Oil Price Risk," IMF Working Papers 01/185, International Monetary Fund.
    8. George Kopits, 2001. "Fiscal Rules; Useful Policy Framework or Unnecessary Ornament?," IMF Working Papers 01/145, International Monetary Fund.
    9. Max Alier & Martin D Kaufman, 1999. "Nonrenewable Resources; A Case for Persistent Fiscal Surpluses," IMF Working Papers 99/44, International Monetary Fund.
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    Cited by:

    1. Rolando Ossowski & Havard Halland, 2016. "Fiscal Management in Resource-Rich Countries," World Bank Publications, The World Bank, number 24577, June.
    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. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
    4. Enrique Alberola-Ila & Ricardo Sousa, 2017. "Assessing fiscal policy through the lens of the financial and the commodity price cycles," BIS Working Papers 638, Bank for International Settlements.
    5. Hilde C. Bjørnland & Leif Anders Thorsrud, 2015. "Commodity prices and fiscal policy design: Procyclical despite a rule," Working Papers No 5/2015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    6. Magda Kandil & Nazire Nergiz Dincer, 2008. "A comparative analysis of exchange rate fluctuations and economic activity: The cases of Egypt and Turkey," International Journal of Development Issues, Emerald Group Publishing, vol. 7(2), pages 136-159, October.
    7. Salman Huseynov & Fuad Mammadov, 2016. "A small scale forecasting and simulation model for Azerbaijan (FORSAZ)," Working Papers 1608, Central Bank of Azerbaijan Republic.
    8. Omo Aregbeyen & Ismail Olaleke Fasanya, 2017. "Oil Price Volatility and Fiscal Behaviour if Government in Nigeria," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 5(2), pages 118-134, June.
    9. Rigoberto Ariel Yépez-García & Luis San Vicente Portes & Luis Enrique García, 2013. "Planning for Higher Oil Prices : Power Sector Impact in Latin America and the Caribbean," World Bank Other Operational Studies 17547, The World Bank.
    10. Rolando Ossowski & Alberto Gonzáles-Castillo, 2012. "Manna from Heaven: The Impact of Nonrenewable Resource Revenues on Other Revenues of Resource Exporters in Latin America and the Caribbean," IDB Publications (Working Papers) 4045, Inter-American Development Bank.
    11. Raimundo Soto & Ilham Haouas, 2012. "Has the UAE Escaped the Oil Curse?," Working Papers 728, Economic Research Forum, revised 2012.
    12. Céspedes, Luis Felipe & Velasco, Andrés, 2014. "Was this time different?: Fiscal policy in commodity republics," Journal of Development Economics, Elsevier, vol. 106(C), pages 92-106.
    13. Hoda Selim & Chahir Zaki, 2014. "The Institutional Curse of Natural Resources in the Arab World," Working Papers 890, Economic Research Forum, revised Dec 2014.
    14. López-Martín Bernabé & Leal-Ordoñez Julio C. & Martínez André, 2017. "Commodity Price Risk Management and Fiscal Policy in a Sovereign Default Model," Working Papers 2017-04, Banco de México.
    15. repec:eee:ecanpo:v:55:y:2017:i:c:p:179-193 is not listed on IDEAS
    16. Kyle, Steven C., 2014. "Mineral Revenues and Countercyclical Macroeconomic Policy in Kazakhstan," Working Papers 180170, Cornell University, Department of Applied Economics and Management.
    17. repec:wsi:medjxx:v:05:y:2013:i:01:n:s1793812013500028 is not listed on IDEAS
    18. Nese Erbil, 2011. "Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?," IMF Working Papers 11/171, International Monetary Fund.
    19. Vugar Ahmadov & Ulvi Sarkarli & Ramiz Rahmanov, 2018. "Structural Budget Balances in Oil-Rich Countries: The Cases of Azerbaijan, Kazakhstan, and Russia," IHEID Working Papers 01-2018, Economics Section, The Graduate Institute of International Studies.
    20. Rigoberto Ariel Yépez-Garcia & Julie Dana, 2012. "Mitigating Vulnerability to High and Volatile Oil Prices : Power Sector Experience in Latin America and the Caribbean," World Bank Publications, The World Bank, number 9341, June.
    21. Iacono, Roberto, 2017. "A comparison of fiscal rules for resource-rich economies," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 179-193.
    22. El Anshasy, Amany A. & Bradley, Michael D., 2012. "Oil prices and the fiscal policy response in oil-exporting countries," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 605-620.


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