The recent, precipitous decline in oil prices (35 percent so far this year) has revived the question of how oil-exporting countries should manage their budgets. These countries’ governments rely on oil revenues for 60-90 percent of their spending. In light of the price drop, should governments cut expenditures, including growth-promoting investment expenditures? Or should they dip into the money they saved when oil prices were high, and keep expenditures on an even keel? Since oil prices fluctuate up and down, governments are looking for rules that guide expenditure decisions, rather than leaving it to the politicians in power at the time to decide whenever there is a price shock. The successful experience of Norway and Chile, which used strict fiscal rules to make sure that resource windfalls are saved and not subject to the irresistible temptation to spend, is often contrasted with countries such as Nigeria and Cameroon, which didn’t.
A cup of coffee in Caracas costs almost 200 times a liter of gasoline. Households in Turkey paid 74 times more than their Egyptian counterparts for bottled cooking gas in early 2013. The price differences across countries for gasoline and diesel are even larger, as much as 250-fold for diesel.
Is Russia’s economy just about to shift a gear downwards?
In the decade before the global financial crisis, Russia’s growth averaged 7 percent, thanks to rising oil prices, rapid credit expansion and policy reform. Then, after the economy took a nosedive in 2009, Russia rebounded to growth above 4 percent even though the global economy was sluggish and the euro area soon went back into a recession.
But now, as we begin the final three months of 2012, Russia’s economy is settling onto a lower growth trajectory. In our new Russian Economic Report, we project that Russia will grow only 3.5 percent this year. Excluding the crisis years of 1998 and 2009, this would be the lowest rate in a decade and a half.
It is still too early to estimate with much precision the quantitative impacts of the devastating events in Japan on the global energy sector, as well as the effects on energy and economic activity in Japan. Nevertheless, some qualitative conclusions can be drawn about the near and medium effects on Japanese and global energy balances. Much more difficult and speculative are judgments about the effect of the nuclear accident that resulted from the natural disaster on the longer-term energy picture.