This issue of the Fiscal Monitor examines the conduct of fiscal policy under the uncertainty caused by dependence on natural resource revenues. It draws on extensive past research on the behavior of commodity prices and their implications for macroeconomic outcomes, as well as on extensive IMF technical assistance to resource-rich economies seeking to improve their management of natural resource wealth.
This paper studies the impact of the level and volatility of the commodity terms of trade on economic growth, as well as on the three main growth channels: total factor productivity, physical capital accumulation, and human capital acquisition. We use the standard system GMM approach as well as a cross-sectionally augmented version of the pooled mean group (CPMG) methodology of Pesaran et al. (1999) for estimation. The latter takes account of cross-country heterogeneity and cross-sectional dependence, while the former controls for biases associated with simultaneity and unobserved country-specific effects. Using both annual data for 1970-2007 and five-year non-overlapping observations, we find that while commodity terms of trade growth enhances real output per capita, volatility exerts a negative impact on economic growth operating mainly through lower accumulation of physical capital. Our results indicate that the negative growth effects of commodity terms of trade volatility offset the positive impact of commodity booms; and export diversification of primary commodity abundant countries contribute to faster growth. Therefore, we argue that volatility, rather than abundance per se, drives the "resource curse" paradox.
International Monetary Fund. Middle East and Central Asia Dept.
Regional Economic Outlook: Middle East and Central Asia underlines that the region has continued to experience strong growth in 2008, and the short-term outlook is generally favorable. However, inflation has emerged as a key issue, and while the global credit crunch has thus far had a limited impact on regional financial markets, the financial turmoil and slowdown in developed economies could lower growth in the period ahead. Policies will need to focus on tightening the fiscal and monetary stance where appropriate, with greater exchange rate flexibility, and continuing efforts to strengthen the resilience of financial sectors.
This Selected Issues paper analyzes the optimal policy response on the part of the Kazakhstan authorities to the prospective oil inflows. It surveys the literature on the so-called natural resource curse and offers an analysis of Kazakhstan’s petroleum potential. The paper analyzes the impact of the oil boom on the non-oil sector, based on a general equilibrium model. It provides an analysis of fiscal rules and fiscal sustainability and assesses the possible role of fiscal policies in addressing the “natural resource curse.”
This paper begins by describing the basic concepts of Islamic banking, focusing on the issue of elimination of the rate of interest from the system. Islam expressly prohibits a fixed or predetermined return on financial transactions but allows uncertain rates of return deriving from risk-taking activities. Consequently, a banking structure in which the return for the use of money fluctuates according to actual profits made from such use would be consistent with the precepts of Islam. The paper concludes that from an economic standpoint the principal difference between the Islamic and the traditional banking systems is not that one allows interest payments and the other does not. The more relevant distinction is that the Islamic system treats deposits as shares and accordingly does not guarantee their nominal value, whereas in the traditional system such deposits are guaranteed either by the banks or by the government.
This paper studies the role of domestic and foreign savings in financing capital formation in 19 industrial countries during the years after World War II. The authors' interpretation of the statistical evidence is that there is very little support for the view that, over the medium term, goods and services freed by savings in one industrial country are systematically made available through current account imbalances to finance investment in physical capital in other industrial countries. The study also finds little support for the view that the integration of financial capital markets in recent years has altered the relationships among domestic savings, investment, and current account imbalances in industrial countries. The evidence suggests that changes in net foreign assets, and the associated current account imbalances, were no more sensitive to cross-country differences in rates of return on physical capital in the ten years ending in 1981 than they had been in the 1950s, when extensive capital controls and trade restrictions hampered the economic integration of the industrial countries.