Given the decline in oil prices, developing countries should rebuild their fiscal buffers (safeguard) to support economic activities in case of a growth slowdown, according to the new edition of ‘Global Economic Prospects 2015’ released on Friday by its Monrovia office.
Kaushik Basu, Senior Vice President and Chief Economist at the World Bank Group said in the report that since oil is likely to remain cheap for some time, oil-importing countries should lower or even eliminate fuel subsidies and rebuild the fiscal space needed to carry out future stimulus efforts.
“Emerging market economies would do well to invest in infrastructure and support social schemes vital to poverty reduction. Such policies can raise future productivity and reduce the fiscal deficit in the long run,” he said.
Commenting on the report ‘Global Economic Prospects 2015’ Mr. Basu said that it has gone beyond prediction and deepens understanding of global economic predicament.
He said it documents how well-designed and credible institutional mechanisms such as fiscal rules, stabilization funds, and medium-term expenditure frameworks are instrumental in fostering growth and restoring depleted fiscal buffers.
However, the report further suggested that developing countries need to rebuild budgets in the medium-term and at a pace determined to country-specific conditions.
It said for oil-importing countries, lower oil prices offer a chance to improve fiscal positions more quickly than might have been possible before mid-2014.
Meanwhile, World Bank Group’s Director of Development Prospects, Ayhan Kose noted that rebuilding fiscal buffers will provide the room required to support activity during times of economic stress.
Kose said the need for additional fiscal buffers is currently more pronounced especially in an environment of uncertain growth prospects, limited policy options, and likely tighter global financial conditions.
Prices for crude oil in the world market continued to drop significantly from USD100 per barrel in June last year to USD 60 to-date.
On Tuesday, the Energy and Water Utility Regulatory Authority (EWURA) issued new price caps for petrol, diesel and kerosene indicating a decline of 74/- (about 3.6 percent), 62/- (3.2 percent) and 54/- (2.88 percent) respectively.
According to the indicative prices, a litre of petrol will now sell at 1,955 (down from 2,029/-) for Dar es Salaam. A litre of diesel will meanwhile sell at 1,846/- and kerosene will be pumped at 1,833/-.
Addressing journalists, Energy and Water Utilities Regulatory Authority (EWURA) Director General, Felix Ngamlagosi, whose statement was contained in the WBG released, said the drop in oil price is a big and direct relief to Tanzanians.
In addition, the authority noted that while the refined petroleum products in the world market, for petrol, diesel and kerosene dropped by a total of USD249 per metric tons, USD189/MT and USD180/MT respectively, the oil price at the local market between September 2014 and January 2015 has dropped by 311/litre, 244/litre, and 207/liter respectively.
He said during the period, the Tanzania shilling depreciated by 4 percent while the drop in the local market prices would have been higher, had the local currency stabilized.