SANTIAGO, 19 December 2008: Falling commodity prices will sharply decline the fiscal revenues of producing countries during 2009, by an equivalent of 2,4 per cent to 3,2 per cent of GDP.
This will condition the ability of some countries to implement countercyclical policies to counteract the impact of the crisis while at the same time maintain social programmes to protect the most vulnerable income groups, states the Economic Commission fo Latin America and the Caribbean, ECLAC, publication Preliminary Overview of the Economies of Latin America and the Caribbean 2008.
The report provides a simulation exercise to estimate the impact of the strong retraction in international commodity prices on the public finances of countries in the region. On average, in 2008 the commodity surplus fell from 2,4 per cent to 1,6 per cent of GDP, and next year it is expected to drop to 0,5 per cent to 0,2 per cent of GDP.
Several countries count with significant fiscal revenues from the exploitation of basic commodities. In Venezuela, Ecuador and Mexico, nearly 30 per cent of total fiscal revenues comes from oil, while in Bolivia, a similar proportion is based on gas.
Fiscal revenue from the exploitation of natural resources is also relevant in Argentina, Chile, Colombia and Peru, where it is equivalent to an average 18 per cent of fiscal revenues.
Under these circumstances, fiscal resources turn very unstable in light of the high volatility of oil, gas, copper and food prices, and this has become dramatic over recent months.
The ECLAC report demonstrates that in eight countries, revenue from the exploitation of these resources is much more volatile than that generated from other sources. Total revenues of commodity producing countries will fall from 24,7 per cent of GDP in 2008 to between 21,4 per cent to 22,3 per cent of GDP next year.
In Bolivia, Ecuador and Venezuela, fiscal revenue is expected to drop 4 to 6 per cent. In Mexico, the impact of lower oil prices will be slighter, with fiscal income diminishing from 3 to 4 per cent of GDP.
The situation of fiscal accounts in primary good producing countries will be more concerning. The average primary balance will fall from a surplus of 2,9 per cent of GDP in 2008 to 0,6 per cent next year. If the decrease in commodity prices is 20 per cent greater, the primary deficit could rise by 0,2 per cent.
To counteract this instability in fiscal revenues and its consequences in public expenditures, ECLAC suggests basing the sustainability of fiscal accounts on sources that are less vulnerable to economic cycles. The long-term stability of public finances is a necessary condition in order to implement countercyclical fiscal policies.
The Commission report recommends strengthening tax systems, and this includes efforts in tax policies and management. In addition, to guarantee the sustainability of fiscal revenues, there must be compatibility between the growing demand for public goods and services and the contribution or sacrifice of revenues that different groups must agree on, through what ECLAC calls building a Fiscal Agreement.
Kilde: Pressemeddelelse fra ECLAC
