^*Francis Y. Kumah is a senior economist with the Middle East and Central Asia Department of the IMF, and John M. Matovu is an economist with the same department. We thank our colleagues Juan Carlos Di Tata, Aasim Husain, Sam Ouliaris, Peter Winglee, Roman Zytek, and an external reviewer for insightful comments that helped enhance the quality of the paper. We are grateful to Malina Savova for commendable research assistance.

Abstract

Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks, using sample data from four countries of the Commonwealth of Independent States—two oil-exporting and two non-oil-exporting commodity-intensive countries. It adopts a structural vector autoregression approach to identify dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal overperformance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long run after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom.