Paper short abstract:

The paper examines the extent to which counter-cyclical policies enacted in boom mitigate impacts of negative shocks to eschew large imbalances that derail investment and inclusive development agenda.

Paper long abstract:

The paper evaluates the extent to which counter-cyclical macroeconomic policies and pro-active structural transformation measures enacted during the commodity boom have mitigated the impacts of the recent sharp price fall on governments' ability to eschew deteriorating macroeconomic imbalances that derail productive investment and 'inclusive development' agenda across commodity dependent developing countries with a focus on SSA. Our analyses are carried out through a comparative analysis of country cases as well as cross-country regressions of growth incidence of price shock. The former examines the range of policies adopted in the boom and their effects on countries' preparedness to counter shocks in a comparative perspective. The policies evaluated include: 1) counter-cyclical resource management such as an enactment of counter-cyclical fiscal rules, an establishment of stabilisation funds, SWFs and sovereign debt management in light of country-specific political economy and governance of public resources that would allow build-up of fiscal and forex reserves; 2) regimes adopted towards monetary and exchange rate policies and capital flow management; and 3) investment, financial and other policies specifically aimed at structural transformation. An access of countries to global financial safety net (swaps, IMF resources) to avoid liquidity challenges is also discussed. Our case-based study is followed by regression analyses of the cross-country growth incidence of the commodity price shock, using the IMF data sets. This analysis examines specifically whether the cross-country incidence and depth of the 2015-6 growth decline among commodity exporting countries is systematically related to mitigating policies and structural reforms they enacted before the shock hit.