The current commodity price boom is affecting the region’s commodity exporters and importers differently. Commodity exporters are benefiting from a marked improvement in their terms of trade, while commodity importers are feeling the pain of higher imported energy and food prices.
A key question is how countries are managing this boom relative to past experience, particularly as the current commodity price shock is occurring in a global and regional context that is distinct from previous episodes.
The latest Regional Economic Outlook examines how MENA countries are responding to high commodity prices and protecting the vulnerable. This task is much harder for commodity importers, where fiscal space is limited. In contrast, the challenge for commodity exporters is to leverage the surplus from high energy prices to build buffers against future shocks and make progress with their transition and diversification plans.
In the past, MENA emerging market and middle-income economies reacted to commodity price surges with increased government spending that often persisted for years, leaving them more indebted and less resilient to future shocks. Similarly, oil exporters experienced marked increases in spending at the time of oil price upswings to then face abrupt adjustments to their budgets when prices eventually fell.
With social safety nets relatively weak, policymakers typically relied on subsidies, tax cuts, and public wage increases to offset real income losses. These policies were poorly targeted, failing to protect those most in need. For instance, past IMF studies found that the bottom 40 percent of the population in Egypt, Jordan, Lebanon, Mauritania, Morocco, and Yemen received less than 20 percent of funds spent on subsidies for diesel and gasoline.
These policies were also hard to reverse—implying that government budgets became more rigid, and governments became locked in a vicious cycle of relying on costly fiscal interventions.
Also published on Medium.
