Exporting nations ‘must guard against price falls’
Wednesday, April 11, 2012
Commodity exporting nations face the risk of lower prices in coming months and should work to protect their economies from swings that would hurt growth, the International Monetary Fund has said.
"Given weak global activity and heightened downside risks to the near-term outlook, commodity exporters may be in for a downturn," the IMF said in a section of its World Economic Outlook report which was released yesterday.
"If downside risks to global economic growth materialise, there could be even greater challenges facing commodity exporters, most of which are emerging and developing economies."
The Washington-based IMF, which will release new global economic forecasts next week, said the priority for exporters is to focus on saving revenue from commodities now to use as a buffer when prices possibly fall later.
Such policies are more effective when countries have an inflation target and a flexible exchange rate, according to the latest report.
While commodities including copper and cotton reached record highs in 2011, prices subsequently declined on concern that Europe’s debt crisis and slower Chinese growth would curb demand.
West Africa nations such as Ivory Coast have seen a 44% drop in cocoa prices from Mar last year and Brazil is among exporters facing lower coffee prices.
If oil prices rise because of geopolitical risks, that would trigger a global slowdown that could push down the price of other commodities, according to the report.
Oil has dropped since touching $110.55 a barrel in intraday trading on Mar 1, the highest level since May 2011, when concern about Iran’s nuclear program drove up prices.
"Under a permanent increase in the commodity price, the key challenge is how best to use the permanently higher royalties to maximise welfare," the IMF said in the report.
"Conversely, if prices were to fall permanently, cutting general transfers could best limit the output shortfall, although the social welfare impact of such cuts must be taken into account."
Bloomberg