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Domestic Petroleum Price Smoothing in Developing and Transition Countries

Author

Listed:
  • Mr. Benedict F. W. Bingham
  • Mr. James Daniel
  • Mr. Giulio Federico

Abstract

This paper examines the case for government-led smoothing of domestic petroleum prices in the face of volatile international prices. Governments in most developing and transition countries engage in petroleum price smoothing, as the survey of country practice carried out for this paper shows. This paper reviews the potential welfare implications of petroleum price volatility, and assesses different price smoothing rules on the basis of historical oil prices. These simulations reveal the presence of a sharp trade-off between price smoothing and fiscal stability, suggesting that developing and transition country governments should engage in limited price smoothing and, if possible, rely on hedging instruments to do so.

Suggested Citation

  • Mr. Benedict F. W. Bingham & Mr. James Daniel & Mr. Giulio Federico, 2001. "Domestic Petroleum Price Smoothing in Developing and Transition Countries," IMF Working Papers 2001/075, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/075
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    References listed on IDEAS

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    2. José Gallardo & Arturo Vásquez & Luis Bendezú, 2005. "La Problemática de los Precios de los Combustibles," Working Papers 11, Osinergmin, Gerencia de Políticas y Análisis Económico.
    3. Paterson, Anna, 2005. "Understanding Markets in Afghanistan: A Study of the Market for Petroleum Fuels," Case Studies 14634, Afghanistan Research and Evaluation Unit.
    4. Artana, Daniel & Navajas, Fernando & Catena, Marcelo, 2007. "El Shock de los Precios del Petróleo en América Central: Implicancias Fiscales y Energéticas," IDB Publications (Working Papers) 2170, Inter-American Development Bank.
    5. Jon Strand, 2010. "Inertia in Infrastructure Development," Journal of Infrastructure Development, India Development Foundation, vol. 2(1), pages 51-70, June.
    6. Daniel Artana & Fernando Navajas & Marcelo Catena, 2007. "El Shock de los Precios del Petróleo en América Central: Implicancias Fiscales y Energéticas," Research Department Publications 4556, Inter-American Development Bank, Research Department.
    7. Hafedh Bouakez & Nooman Rebei & Désiré Vencatachellum, 2008. "Optimal Pass-Through of Oil Prices in an Economy with Nominal Rigidities," Cahiers de recherche 0831, CIRPEE.
    8. Ton S van den Bremer & Frederick van der Ploeg, 2013. "Managing and Harnessing Volatile Oil Windfalls," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(1), pages 130-167, April.
    9. Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," World Development, Elsevier, vol. 40(11), pages 2234-2248.
    10. Chebbi, Ali, 2019. "How to enlarge the fiscal space and gain efficiency when adopting automatic fuel pricing mechanisms? The Tunisian case," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 34-43.
    11. Mr. David Coady & Mr. Taimur Baig & Mr. Joseph Ntamatungiro & Mr. Amine Mati, 2007. "Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies," IMF Working Papers 2007/071, International Monetary Fund.

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