Fiscal Policy Challenges in Oil-Exporting Countries - A Review of Key Issues

62 Pages Posted: 3 Jul 2009

See all articles by Michael Sturm

Michael Sturm

European Central Bank

Francois J. Gurtner

European Central Bank (ECB)

Juan Gonzalez-Alegre

University of Malaga - Departamento de Teoría e Historia Económics

Date Written: June 25, 2009

Abstract

Fiscal policy choices have a particularly significant impact on economic performance in oil-exporting countries, owing to the importance of the oil sector in the economy and the fact that in most countries oil revenues accrue to the government. At the same time, fiscal policy in oil-centered economies is facing specific challenges, both in the long run, as regards intergenerational equity and fiscal sustainability, and in the short run, as regards macroeconomic stabilisation and fiscal planning. Institutional responses to the specific fiscal challenges in oil-exporting countries involve conservative oil price assumptions in the budget, the establishment of oil stabilisation and savings funds and fiscal rules. Fiscal policy in most oil-exporting countries has been expansionary over the past years in the wake of high oil prices. Fiscal expansion has added to inflationary pressure, and monetary policy has been constrained in tackling infl ation as a result of prevailing exchange rate regimes. While, in this context, fiscal policy is the major tool for macroeconomic stabilisation, it has faced competing objectives and considerations. Cyclical considerations would have warranted fiscal restraint, but, in times of high oil prices, pressures to increase public spending have been mounting. Such pressures stem from primarily distribution-related considerations, development-related spending needs (e.g. in the areas of physical and social infrastructure) and international considerations in the context of, for example, global imbalances. The sharp fall in oil prices since mid-2008 has brought to the fore a different question - whether oil exporters can sustain spending levels reached in previous years.

Keywords: fiscal policy, oil-exporting countries, inflation, global imbalances

JEL Classification: E62, E63, H30, H60, Q32, Q38

Suggested Citation

Sturm, Michael and Gurtner, Francois J. and Gonzalez-Alegre, Juan, Fiscal Policy Challenges in Oil-Exporting Countries - A Review of Key Issues (June 25, 2009). ECB Occasional Paper No. 104, Available at SSRN: https://ssrn.com/abstract=1325245

Michael Sturm (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Francois J. Gurtner

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Juan Gonzalez-Alegre

University of Malaga - Departamento de Teoría e Historia Económics ( email )

Facultad de Ciencias Económicas y Empresariales
Campus de El Ejido
Málaga, Málaga 29071
Spain
952131227 (Phone)

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