IMF: Decline in Commodity Prices Has Significantly Affected Low-Income Developing Countries
A recently-released International Monetary Fund (IMF) paper has found that the sharp decline in international commodity prices over the past 18 months has significantly affected many low-income developing countries (LIDCs).
Countries heavily reliant on commodity exports such as oil and minerals experienced a significant slowing of growth in 2015 that is expected to carry over into 2016.
Countries with more diversified export revenues are continuing to record robust economic growth. Natural disasters and internal conflicts have disrupted economic activity in several countries, while a few others have been affected by adverse spillovers from economic difficulties in Russia. In some cases, weak domestic policies have also contributed to poor growth outcomes.
Weakening fiscal and external positions have left many commodity exporters increasingly vulnerable to adverse shocks, notes the IMF paper, underscoring the need for policies to adjust to what is expected to be a sustained period of less favorable export prices. Some diversified exporters that have benefited from improved terms of trade over the past two years also face elevated vulnerabilities, usually due to weakened fiscal positions.
The paper also examines the implications of the ongoing process of climate change on LIDCs over the longer term. LIDCs are especially vulnerable to the projected effects of climate change, the paper found, and will need significant external assistance to adequately finance adaptation efforts.
Capital inflows to LIDCs have increased sharply in recent years, with some easing expected ahead, given lower mineral prices and tightening global financial conditions. While favorable external factors contributed to the surge in capital flows, strong economic performance and improved macroeconomic fundamentals in many LIDCs also provided a strong pull factor. Capital inflows have contributed to higher domestic expenditure levels, with the split between additional consumption and higher investment depending on both the type of capital inflow and on domestic policy settings.