IMF Seminar
Food and Fuel Price Surge
Tuesday, July 1, 2008, 10:00 a.m.Washington, DC
Food and Fuel Inflation Have Doubled Since 2006
Median Inflation in 120 low- and middle-income countries, 2006-08
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2006 2007 2008:Q1
CPI Food Fuel
Year-on-year inflation (%)
Food Balance of payments deterioration from higher food prices in 33 low-income net food importers (Jan 07-Apr 08)
High impact (greater than 1% of GDP)Medium impact (up to 1% of GDP)
FuelBalance of payments deterioration from rising oil prices in 59 low-income net oil importers (Jan 07-Apr 08)
High impact (greater than 2% of GDP)Medium impact (up to 2% of GDP)
Food and Fuel Price Increases
Recent Developments, Macroeconomic Impact,and Policy Responses
Research Department,Fiscal Department, and
Policy Development and Review Department
International Monetary Fund
Oil demand growth has shifted to emerging and Oil demand growth has shifted to emerging and developing economiesdeveloping economies
0
1
2
3
4
5
6
7
8
2001 2003 2005 20070
20
40
60
80
100
120
140Emerging and DevelopingCountries (LHS)Oil Price (U.S. dollars abarrel, IMF APSP) (RHS)
Oil Demand Growth in Emerging and Developing Countries and Oil Price 1/
Oil Demand Growth in Industrial Countries and Oil
Price
1/ June 2008 Forecast.
-2
-1
0
1
2
3
4
5
2001 2003 2005 20070
20
40
60
80
100
120
140Industrial Countries(LHS)
OIL Price (U.S.dollars a barrel, IMFAPSP) (RHS)
7
Perpetuation of very low spare capacity and tight oil market Perpetuation of very low spare capacity and tight oil market conditionsconditions
World Oil Demand, Production Capacity and Spare Capacity (million barrels a day)
40
50
60
70
80
90
100
110
120
1970 1982 1994 20060
2
4
6
8
10
12
14
16Others' spare capacity (RHS)
Saudi Arabia's spare capacity(RHS)Capacity (LHS)
-50
0
50
100
150
200
250
Avg1995-2000
01 02 03 04 05 06 07 08
Other Emerging and Developing Economies
Industrial Countries 2/
Corn Used in US Ethanol Production
China
Total Production
Demand for Major Food Crops and Production(Year-on-year change, millions of metric tons)
Demand for major food crops has accelerated while production has been slow to increase 1/
1/ Includes corn, rice, soybeans, and wheat.
2/ Excludes corn used in U.S. ethanol production.
0
40
80
120
160
200
240
1970 73 76 79 82 85 88 91 94 97 00 03 06 09
Prices and Inventory Cover of Major Food Crops
Inventories of major food crops have been declining
Inventory cover
(days of global consumption)
Price index
(2005=100)
Fiscal Policy: Challenges
Challenge is to combine pass-through with measures to protect the poor Full pass-through of price increases
encourages efficient responses by consumers &facilitates sound fiscal policy
But, pass through can hurt the poor Countries have adopted a broad array of policy responses toward this end
Changes in fuel taxes
No changeIncreaseDecreaseBoth increase & decreaseNo data
Changes in food taxes
No changeIncreaseDecreaseBoth increase & decreaseNo data
Fuel tax & subsidy costs
0.0 0.3 0.6 0.9 1.2 1.5
Ireland
Dominican Republic
Congo, Republic of
Brazil
Philippines
Chile
Timor-Leste
Sierra Leone
Lao, PDR
Niger
Lebanon
Korea, Republic of
Peru
Rwanda
Burundi
Sri Lanka
Seychelles
Saudi Arabia
Guyana
Fiscal Cost of Fuel Tax Reductions
-6.0 -4.5 -3.0 -1.5 0.0 1.5 3.0 4.5
IraqJordan
Cape VerdeAngolaSudanGabon
United Arab EmiratesEgypt
RussiaMongolia
Burkina FasoFrance
São Tomé and PríncipeHonduras
SenegalMauritius
NepalBelize
BarbadosTunisia
PanamaOman
NigeriaBangladeshEl Salvador
CambodiaPeru
CameroonIndia
MexicoUkraine
MalaysiaPakistanMoroccoEcuador
Venezuela, Rep. Bol.Yemen, Republic of
TurkmenistanChange in Fuel Price Subsidies: 2006-2008
Food tax & subsidy costs
0.0 0.2 0.4 0.6 0.8 1.0 1.2
PhilippinesCôte d'Ivoire
EcuadorRussia
PeruEl SalvadorTimor-Leste
Macedonia, FYRSaudi Arabia
GuatemalaSierra Leone
MauritaniaBurkina Faso
IndiaJordan
BangladeshGuinea
IndonesiaGabon
CameroonAzerbaijan
BeninGambia
Solomon IslandsGuyana
SeychellesNiger
SenegalGrenadaMorocco
Liberia
Fiscal Cost of Food Tax Reductions
-0.7 0.0 0.7 1.4 2.1 2.8
IndonesiaIndia
Yemen, Republic ofTurkmenistan
Venezuela, Rep. Bol.Philippines
BeninSeychelles
MalaysiaLebanon
MauritaniaJamaicaEthiopia
BangladeshMorocco
AzerbaijanSwazilandMauritius
EgyptPakistan
GuatemalaSenegal
Costa RicaBurundiJordan
Timor-LesteMaldives
Change in Fuel Price Subsidies: 2006-2008
Targeted program changes
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
IraqZimbabwe
UkrainePoland
ArgentinaLatvia
MozambiqueMacedonia, FYR
BeninMongolia
GabonCape VerdeSouth Africa
El SalvadorSt. Vincent and Grens.
SurinameBrazil
NicaraguaJamaicaPakistan
Sri LankaCroatia
GuatemalaGuyanaSenegal
ParaguayAzerbaijanIndonesia
AfghanistanKyrgyz Republic
PhilippinesCosta RicaSingapore
PeruEcuadorMexico
TurkmenistanGrenadaGeorgia
HondurasJordan
IndiaBangladesh
BelizeMalawi
MauritaniaChange in Targeted Transfers: 2006-2008
Total fiscal costs by country
-8.0 to 0.00.0 to 1.01.0 to 2.02.0 to 5.0No data
Challenges going forward
Develop targeted transfers to protect poor from price surges as part of a broader poverty reduction strategyFind the fiscal space to implement mitigating measuresAddress the political hurdles presented by subsidy reform
Precipitous reform can engender backlash from affected groups and even social unrest
Balance of Payments Impact (1)BOP impacts of food and fuel shocks from Jan 2007-April 2008
already quite sizable
Impact in percentage of GDP
Impact in months of imports
Impact on 59 low income net oil importers
Impact on 33 low income net food importers
-2.2
-0.5
-2.5
-2
-1.5
-1
-0.5
0
-0.7
-0.2
-0.8
-0.6
-0.4
-0.2
0.0
Balance of Payments Impact (2)
Simulation of further shocks to assess which countries highly impacted.*
*Shocks simulate a 20 percent increase in food and fuel prices from levels prevailing at the time of the IMF’s Spring 2008 World Economic Outlook projections.
2
23
37
30
1
21
25
18
0 10 20 30 40 50 60
WINNERS: IR <3 monthsbefore shocks and >3 after
HIGH IMPACT: IR drop>0.5 months
HIGH IMPACT: IR <3months after shock
BEFORE the shock: IR <3months
PRGF MICs
BOP impact (3): large but wide variance among countries. Fuel greater impact
Reserves <3 months before and after shocksReserves <3 months before shocks and >3 after shocks Reserves <3 months after shocksReserve drop >0.5 monthsNo data
Inflation impact (1)
Widespread and dramatic effect: higher fuel and food prices have led to substantial increases in headline
inflation.U nweighted A verage 12-m onth Inflation in 139 C ountries (in percent)
0 .0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2006 2007 2008 Q 1 2008 Proj.
C P I Food Fuel
Inflation Impact (2)
Food prices have more impact on inflation than fuel prices: larger share of food in the CPI and imports
Import Composition (in percent)(average for 120 non-OECD countries)
Food, 16
Fuel, 23Others,
62
Composition of the CPI Basket (in percent)(average for 120 non-OECD countries)
Food, 37
Fuel, 7
Others, 56
SubSub--Saharan Africa: Food Price ShocksSaharan Africa: Food Price Shocks
SubSub--Saharan Africa: Saharan Africa: Food and Oil Price ShocksFood and Oil Price Shocks
Worst Hit sub-Saharan African Countries
Liberia
Ghana
Eritrea
Comoros
Sierra Leone
Tanzania
Gambia, The
Guinea-Bissau (CFA)
Mali (CFA)
Kenya
Togo (CFA)
Guinea
Burundi
Mozambique
MadagascarNamibia
Cape Verde
Ethiopia
Burkina Faso (CFA)Niger (CFA)
Malawi
Zambia
Uganda
Central African Rep. (CFA)
Benin (CFA)
Rwanda
São Tomé & Príncipe
Zimbabwe
Senegal
Congo, Dem. Rep.
0
4
8
12
16
20
24
28-12-10-8-6-4-20
SSA Reserves and BOP Impact of Food and Oil Price Shock in 2008
BOP impact of food and oil price shock (Percent of GDP)
Inte
rnat
iona
l res
erve
s (P
erce
nt o
f GD
P)
Shock to reservesratio = 0.5
Notes: Countries in the CFA Franc zone pool reserves, the group reserve holdings can be more informative than country reserve ratios.
-2.5
Spikes in oil and food prices are building inflationary pressures
Sub-Saharan Africa: 12-month CPI Inflation1
(Percent)
5
6
7
8
9
10
11
12
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Source: IMF, International Financial Statistics.1 The April 2008 figure includes available data for 25 countries.
10.8
Senegal Poverty Impact of Rising Food Prices
Distributional impact of price increases Rice and bread are important components of household food consumption:
Average Budget Shares for Food Items, All Households
Sources: Senegalese household survey; and staff calculations.0
2
4
6
8
10
12
Quintile1
2 3 4 Quintile5
All HHs
Powdered Milk Bread Rice
Increases in Access for sub-Saharan Africa Poverty Reduction and Growth Facility Eligible Countries
Countries In mill of SDRs In % of quota Board Date
Benin 9.29 15 6/16/08Burkina Faso 9.03 15 1/ 1/9/08Central African Republic 8.36 15 6/18/08Mali 18.66 20 2/ 5/28/08
1/ Burkina Faso's augmentation was approved by the Board last January. 2/ Mali's new arrangement increased access from 10 to 30 percent.
As of 6/30/08