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Future Development Forecasts 2015

Shanta Devarajan's picture

Despite their mixed record last year, Future Development's bloggers once again offer their predictions for 2015.  Eight themes emerge.
 
1. Global growth and trade. The US economy will strengthen far above predictions. Together with lower oil prices and a better business climate in emerging markets, this will create substantial positive spill-overs, including to the smaller export-oriented Asian economies, boosting the growth of their manufactured exports well above recent trends. The US will look to open new free trade agreements in Asia—India may try to join—and seek opportunities to do the same in Africa. Meanwhile, Germany will face increasing resistance to the free-trade agreement with America (TTIP), just as Angela Merkel celebrates her 10th year in office.

The Decline in Oil Prices: An Opportunity

Ivailo Izvorski's picture

A decade of elevated oil prices brought prosperity to many developing countries. Incomes rose, poverty shrank, macroeconomic buffers were rebuilt. The fiscal space for investing more in education and infrastructure increased, resulting in better sharing of prosperity. At the same time, higher commodity prices and surging global demand resulted in much more concentrated exports in all developing oil-rich countries. "Diversifying exports" became a priority for policy makers and development economists around the world. Historical experience and evidence to the contrary from successful resource rich countries notwithstanding, many widely believe that a more diversified export structure should be an important national goal and may well be a synonym for development, a goal that government can target and achieve.  And a more diversified export structure typically meant a smaller share of commodity exports in total shipments abroad or a reduced concentration – as measured by the Herfindahl-Hirschmann index – of exports.

The Impact of Falling Oil Prices

Birgit Hansl's picture

 Notes from Russia and Kazakhstan

Petrol tanker driving along the rural road in Russia Oil prices tumbled dramatically since July when they reached US$115 per barrel to below US$65 per barrel in recent days. Despite the sharp price decline, OPEC signaled no intention to cut production.  The oil market remains well-supplied and there is demand-driven pressure on oil prices, following weak economic data from the Euro zone and a number of emerging economies, including Turkey, Brazil, Russia, and China which means that the oil price could fall even further and remain low for longer.

The economic prospects of many resource abundant economies are tied to oil prices. Russia and Kazakhstan are two extreme cases. Such dependency translates into volatility of export receipts and government revenues and, depending on the exchange regime, to a decline in the national currency. For Russia, oil and gas provide about 70 percent of its exports and 50 percent of its federal budget. In Kazakhstan, oil revenues constitute about half of government’s total revenues and 45 percent of foreign exchange earnings.

Lessons from Reducing Energy Subsidies

Mamta Murthi's picture
Also available in: Română

A view from Central Europe and the Baltics

Energy subsidies are common throughout the world.  The bulk of subsidies are paid in the Middle East and North Africa where my colleague, Shanta Devarajan, has eloquently blogged about their corrosive impact on economic growth, on employment, on human health and on water conservation.  Where I sit, in Central Europe, many countries are in the process of liberalizing their market for energy and bringing subsidies to an end.  What lessons does the experience of energy price liberation in this group of countries offer to their neighbors in the south?  Based on the work of my colleagues, Nistha Sinha and Caterina Ruggieri, I would draw five lessons.

Budget Rules for Resource Booms - and Busts

Shanta Devarajan's picture

Oil pumps 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.

Corrosive Subsidies in MENA

Shanta Devarajan's picture

Air pollution in Cairo Half the world’s energy subsidies are in the Middle East and North Africa Region.  These subsidies have been criticized on grounds that they crowd out public spending on valuable items such as health, education and capital investment.  Egypt for instance spends seven times more on fuel subsidies than on health.  Furthermore, the allocation of these subsidies is heavily skewed towards the rich, who consume more fuel and energy than the poor.  In Yemen, the portion of fuel subsidies going to the richest quintile was 40 percent; the comparable figure in Jordan was 45 percent and in Egypt, 60 percent.
 

It’s not the How; It’s the Why

Shanta Devarajan's picture
Also available in: Español | Français | العربية

Hardly a week goes by without my hearing the statement, “It’s not the What; it’s the How.”  On the reform of energy subsidies in the Middle East and North Africa, for instance, the discussion is focused not on whether subsidies should be reformed (everyone agrees they should be), but on how the reform should be carried out.  Similar points are made about business regulations, education, agriculture, or health. I confess to having written similar things myself.  And there is no shortage of such proposals on this blog
 
Reforms are needed because there is a policy or institutional arrangement in place that has become counterproductive.  But before suggesting how to reform it, we should ask why that policy exists at all, why it has persisted for so long, and why it hasn’t been reformed until now.  For these policies didn’t come about by accident.  Nor have they remained because somebody forgot to change them.  And they are unlikely to be reformed just because a policymaker happens to read a book, article or blog post entitled “How to reform…”

لا يتعلق الأمر بالكيفية، بل بالسبب

Shanta Devarajan's picture
Also available in: English | Español | Français

انقضى أسبوع تقريبا دون أن أسمع عبارة "لا يتعلق الأمر بالكيفية بل بالسبب."  ففي مجال إصلاح دعم الطاقة في الشرق الأوسط وشمال أفريقيا، على سبيل المثال، لا يتركز النقاش على ما إذا كان ينبغي إصلاح الدعم (يتفق الجميع على ضرورة ذلك) بل على كيفية إجراء الإصلاح.  وتثار نقاط مماثلة بشأن تنظيم ممارسة الأعمال أو التعليم أو الزراعة أو الصحة. واعترف بأني أنا نفسي كتبت أمورا مشابهة.  ولا يوجد نقص في مثل هذه المقترحات على هذه المدونة.
 
فالإصلاحات مطلوبة لأنه توجد سياسات أو ترتيبات مؤسسية قائمة باتت معوقة.  لكن قبل أن نقترح كيفية إصلاحها ينبغي أن نسأل لماذا وُجدت هذه السياسة من الأصل، ولماذا استمرت فترة طويلة، ولماذا لم يتم إصلاحها حتى اليوم.  فهذه السياسات لم تأت مصادفة.  ولم تستمر لأن شخصا ما نسي تغييرها.  ولن يتم إصلاحها على الأرجح لمجرد أن أحد صانعي السياسات قرأ كتابا أو مقالا أو مدونة بعنوان "كيف تصلح..."

More and Better Financing for Development

Homi Kharas's picture

One of the major issues in the Open Working Group’s outcome report on the shape of the post-2015 agenda is the availability and access to financing to allow the goals to be met. There is a great temptation to simply try and calculate the financing needs for each goal and add them up to get the total financing need. Because this approach seems simple, it is appealing to many. The problem is that it is conceptually wrong.
 

Growth Without Apology

Shanta Devarajan's picture

 Chhor Sokunthea / World BankFrom time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.

In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics.  Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.

Some examples illustrate the point.

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