When the Cycle Becomes the Trend: The Emerging Market Experience with Fiscal Policy During the Last Commodity Super Cycle

30 Pages Posted: 23 Jan 2019

See all articles by Rashaad Amra

Rashaad Amra

Parliamentary Budget Office

Marek Hanusch

University of Oxford

Charl Jooste

World Bank

Date Written: January 18, 2019

Abstract

Fiscal buffers have shrunk across the world. This paper argues that limited fiscal room in emerging market economies today is partly due to the commodity super cycle of 2000-15. The super cycle created the mirage that economic performance had structurally improved, mistaking a long, commodity-fueled uptick in the business cycle for higher trend growth. This thinking supported fiscal expansions. When the commodity boom ended, it became apparent that countries had saved less than they should have, and that fiscal policy had, perhaps inadvertently, been pro-cyclical. It left countries with depleted fiscal buffers and large budgets when the cycle came to an end, limiting room for fiscal stimulus when needed. The paper illustrates the argument with reference to the South African experience.

Keywords: Macro-Fiscal Policy, Economic Adjustment and Lending, Public Finance Decentralization and Poverty Reduction, Public Sector Economics, Commodity Risk Management, Public Financial Management, Administrative & Civil Service Reform, Public Sector Administrative and Civil Service Reform, De Facto Governments, Democratic Government, Public Sector Administrative & Civil Service Reform, Economic Growth, Economic Theory & Research, Industrial Economics

Suggested Citation

Amra, Rashaad and Hanusch, Marek and Jooste, Charl, When the Cycle Becomes the Trend: The Emerging Market Experience with Fiscal Policy During the Last Commodity Super Cycle (January 18, 2019). World Bank Policy Research Working Paper No. 8712, Available at SSRN: https://ssrn.com/abstract=3318698

Rashaad Amra (Contact Author)

Parliamentary Budget Office

South Africa

Marek Hanusch

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Charl Jooste

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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