(June 11, 2016) I recently visited Algeria and Morocco. Like so many other developing countries, they are dealing with the sharp decline in global commodity prices that has taken place over the last few years. In meetings in Algiers and Casablanca, I offered four concrete ideas for policies to help commodity-exporting countries deal with global price volatility. The four proposals, very briefly, are: (1) hedging with options (as Mexico does), (2) commodity bonds, (3) countercyclical fiscal institutions (like Chile’s), and (4) central bank targeting of a currency-plus-commodity basket.
In Rabat, I further discussed countercyclical fiscal policy and also at the OCP Policy Center did a video interview that included recent global economic developments.
It is easier to suggest ways to insure against a fall in the terms of trade when prices are high, as they were five years ago, than it is to give advice after the crash has already happened. But I was pleased to learn that Morocco is on the list of countries — which includes also the UAE, India, Indonesia, among others – that have cut hugely wasteful consumer energy subsidies in recent years. Algeria needs to do the same. It is running a budget deficit of 16% of GDP, most of which can be accounted for by subsidies to energy, food and water. It is much easier politically to reform such subsidies at a time of falling world prices for energy and other commodities than in normal times.