Low Oil Prices Cost Exporters More Than Aid Importers, IMF Says

An employee stands on a platform beside an oil storage tank at an oil plant operated by MND AS in Damborice, Czech Republic, on March 23.

An employee stands on a platform beside an oil storage tank at an oil plant operated by MND AS in Damborice, Czech Republic, on March 23.

Photographer: Martin Divisek/Bloomberg

Tumbling crude prices will cost oil producing countries fiscal losses worth about 4 percent of their economies this year, the International Monetary Fund said, listing Venezuela and Iraq among those most severely hit.

Oil importers in emerging and developing countries stand to gain average fiscal savings of 1 percent of gross domestic product, the IMF said in its Fiscal Monitor report released Wednesday.

Focused on the shape of governments’ finances, the report also pointed to the “triple threat” of low growth, low inflation and high debt in advanced economies. In the U.S., the IMF urged a medium-term deficit reduction plan to deal with the anticipated high cost of aging baby boomers, “long-overdue” tax simplification and infrastructure investments.

“High public and private debt levels continue to pose headwinds to growth and debt sustainability in some advanced economies,” the IMF said in the report. “Meanwhile, lower oil and commodity revenues have created challenges for exporting countries.”

The hit for exporters ranges from close to zero to more than 25 percent of GDP, depending on how much their budgets depend on oil revenue. Brent crude, the benchmark for most of the world’s oil, fell 46 percent over the past 12 months, to $58.88 a barrel as of Tuesday on the London-based ICE Futures Europe exchange.

Especially Challenging

The decline might be especially challenging for many crude-producing countries that had previously used higher oil prices to finance “large increases” in spending and now need prices “considerably higher” than the $58 a barrel projected for 2015 to cover expenses, the IMF said.

Yet the oil price drop presents a “golden opportunity” to reduce energy subsidies and raise energy taxes, the IMF said, citing examples of successful such actions in Indonesia and Malaysia.

The drop in oil prices, together with accomodative monetary policy, is also supporting “a moderate and uneven recovery” in advanced economies. Still, inflation below target makes cutting public debt difficult, according to the Washington-based lender.

“A lasting solution to the debt overhang problem is not possible without higher growth and moderate inflation,” the IMF said in the Fiscal Monitor. “This underscores the need to continue monetary stimulus and accelerate structural reforms to catalyze growth.”

Fastest Growth

The U.S. will expand 3.1 percent this year, the fastest among major developed economies, Japan is expected to grow 1 percent and the euro area is projected to advance 1.5 percent, the IMF said Tuesday.

Emerging market and low-income developing economies might be hurt by surprises about the expected interest rate increase in the U.S., the Fiscal Monitor report said.

The euro area needs to simplify fiscal governance, while Japan needs a medium-term plan that would include targeted stimulus during economic slowdowns, according to the IMF.

In China, a further shift toward domestic consumption and lower reliance on credit and investment would curb the risks of a “financial disruption or a sharp slowdown,” according to the report.

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