Commodity-exporting governments can reduce debt and still protect their least well off citizens
PRICES for many primary commodities in world markets posted substantial gains over the past decade—even after taking into account the declines during the global crisis. For countries that rely heavily on commodity revenues, such price booms are a bonanza that their governments can either spend or save and use to reduce debt.
Spending this revenue, although tempting, is fraught with danger. If commodity prices fall at a later date, spending may also have to be cut—perhaps sharply. By basing its spending on commodity revenues, a government essentially introduces global volatility into the domestic economy.
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