Academic literature on the topic 'Oil revenue'

The bursting of crude oil prices in the international market since mid-2014 has resulted in dwindling oil revenue, which has led to economic recession in Nigeria. The recession has further exacerbated existing socioeconomic problems bedeviling the country. In the light of this, we examined the effect of government revenues (oil and non-oil revenues) on economic growth, both in the short-run and the long-run using autoregressive distributed lag method. Our findings show that government revenues are indispensable to economic growth in Nigeria. In addition, we found that economic growth is more responsive to oil revenue than non-oil revenue. Based on our findings, we advocate for effective and efficient use of government revenues. Furthermore, since oil revenue fluctuates more than non-oil revenue, we further advocate for creation of an enabling business environment geared towards improving the contribution of the non-oil sector to the government revenue base.

The decline in oil prices globally has led to diversification of economy in most oil enriched countries. In Nigeria, more attention is given to agriculture and non-tax revenue sources to ensure that the country overcomes a mono-economy syndrome which has affected the nation in the past. This study assesses the contributions of agriculture, oil and non-oil tax revenue to economic expansion in Nigeria using data that cover a period from 1981 to 2017. The regression results indicate that oil revenue has a significant negative impact on economic growth which is represented by gross domestic product. On the contrary, the study finds evidence that agriculture and non-oil tax revenue have a robust significant and positive influence on economic growth. Therefore, the study suggests that tax administration in Nigeria should be more business-growth conscious and that agriculture should be given a boost by creating an enabling environment that could attract foreign direct investments in the agricultural sector. The study also recommends that oil revenues should be utilized for reinvestments into other sectors of the economy. Keywords: Oil revenue, non-oil tax revenue, agriculture, economic growth, Nigeria.JEL Classifications: H27, H24, H25, N5, O4

AbstractThis paper uses two recent household surveys, together with data from the College for Control and Monitoring of Oil Revenues, to analyse the impact of oil revenues on wellbeing in Chad. Following a multiple-correspondence analysis to estimate a synthetic household-based multidimensional wellbeing (MDW) index, we used the difference-in-difference approach to assess the impact of oil revenues on average MDW at the department level. We found evidence that departments in Chad that received significant oil transfers have a higher MDW compared to those disadvantaged by the oil-revenue-redistribution policy. We conclude that, in order to promote economic inclusion, the government of Chad should better develop oil-revenue-redistribution policies according to local development needs and target the poorest departments.

The oil sector that eased the financial constraint of Nigerian government in the 1970s is presently acting as the source of financial constraints to the country due to a continuous decline in government revenue, arising from the recent drastic fall in world crude oil prices. This calls for the government to diversify its revenue base through improving taxation. This study examined the influence of economic performance on the government revenue as well as the various sources of tax revenues in Nigeria. Monthly data spanning 1999 to 2016 were utilized to estimate vector error correction models (VECM) for five sources of government tax revenues based on data availability. Empirical results revealed that there is a significant relationship between real GDP and real company income tax revenues, and between real GDP and real excise duty revenues in the long run. However, in the short run, the one-year lag of tax revenue varieties poses a significant influence on the various sources of tax revenues.

AbstractNontax revenues make up a substantial amount of government revenue around the world, though scholars usually focus on individual sources of such revenue (for example, foreign aid and state-owned oil companies). Using a theory of regime change that builds on recent models of the redistributional foundations of dictatorships and democracies, I generate hypotheses regarding all nontax revenue and regime stability. I argue that an increase in nontax revenue should be associated with less taxation of elites in democracies, more social spending in dictatorships, and more stability for both regime types. I find support for all three of these hypotheses in a cross-sectional time-series analysis, covering all countries and years for which the necessary data are available. Significantly, I show that the particular source of nontax revenue does not make a difference: they all act similarly with regard to regime stability and the causal mechanisms.

Received wisdom argues that citizens more readily demand accountability from government for taxes than for nontax revenue from oil or foreign aid, giving rise to an important mechanism underlying the “resource curse,” which posits that nontax revenue causes citizen quiescence and hampers government accountability. However, in developing countries, obfuscation through value-added taxes and strong popular feelings of ownership over all revenues may minimize differences across revenue sources. Identical experiments on representative samples of Ghanaians and Ugandans, and similar experiments on members of parliament, probe the effects of different sources and delivery channels of government revenues on citizens’ actions to monitor governments and members of parliament (MPs’) beliefs about accountability pressures. Roughly half of all citizens take action to monitor all 3 sources. However, neither Ghanaians nor Ugandans demand more accountability for taxes than oil or aid when the revenues go to the government. MPs likewise saw no difference. Citizens do differentiate between aid money given to nongovernmental organizations (NGOs) compared with revenues delivered to the government. Findings are robust to numerous alternatives and subgroups. Against strong expectations from prior research, little evidence exists showing that taxes strengthen citizens’ demands for accountability or that MPs perceive differences across revenue sources in these 2 representative African countries. However, aid channeled through NGOs motivates more accountability pressures.

There is growing consensus that large oil and gas revenues in autocracies have multiple pernicious effects, from decreasing democratization to increasing armed conflict: the so-called “resource curse.” Yet we know little about the effects of oil and gas revenue on the onset of major nonviolent dissent. The logic of the resource curse would lead us to expect oil and gas revenue to significantly decrease the likelihood of nonviolent resistance, as resource wealth enables autocracies to increase repressive capacity and co-opt potential challengers. But this relationship has yet to be comprehensively tested. I show that such an effect obtains, but is more complex than previously theorized. Low levels of oil and gas revenue increase the likelihood of nonviolent resistance onset, while high levels decrease it. Despite popular assumptions and the general logic of the resource curse, oil only appears to drown out major nonviolent dissent at relatively high levels.

AbstractThis paper proposes a theoretical analysis of the joint impact of foreign aid and oil taxes on the revenues of a rich oil importing country (North) and a two-class, oil exporting country (South). Without coordination, oil taxes are strictly higher in the North and the global allocation of oil is inefficient. Moreover, oil taxes in the North extract some of the South's oil rents, undoing the revenue transfers from foreign aid. We show that a policy coordination mechanism reduces inefficiencies and improves global welfare.

In most of oil exporting countries, oil revenue is considered as one of the main drivers of the economy. These revenues, as the important source of currency, at least, enables the country import various capital goods, intermediaries and consumables and usually covers part of the government's current and development expenditures. However, oil revenues are volatile and uncertain due to the changing nature of the global oil price. This indicate that a significant part of the economy in these countries is exposed to potential instability which is supposed as an anti-growth factor. The present study seeks to examine the effect of oil revenues on inflation and real exchange rate as dominant proxies of macroeconomic stability along with economic growth in oil exporting countries using the GMM method during the 1980 to 2015 period. The results show that oil revenues have different effects on these indicators in selected countries.

Management of oil and gas resources or revenues from trans-boundary or disputes areas has always been an issue of controversy in most oil and gas resource-rich countries. Tanzania is among the developing countries which rise with rich in oil and gas resources. It requires more attention on how the revenues generated from these resources should be utilized sustainably. This paper, therefore, provides the current overview of the tools and institutions that offer the guidelines on oil and gas revenue management and distribution.

This study aims to identify the effects of oil income on economic growth in Iran over the period 1955-2014. The empirical literature indicates that countries with natural resources are growing more slowly than their counterparts. However, the results from this literature are far from conclusive, particularly in regard to the role played by oil-rich countries. Needless to say, this role depends on other factors as well, including the political situation in the country, the quality of institutions, and the efficacy of the financial system. Some empirical research has found that natural resources, particularly oil, can have a positive impact on the output of a country. although natural resources are not a factor of production in growth theories, studies have used different growth frameworks in order to discover whether having natural resources is a blessing or a curse. In line with recent studies, this work uses an augmented neoclassical growth model to develop a theoretical framework where oil enters the long-term output of the country through saving and investment. Overall, the results suggests that oil income has a positive impact on the level of output per capita in Iran. The findings of the econometric results are in line with the historical analysis of the study. Since different methods and proxies were used, a total of eight models were estimated. Interestingly, when PRIVY is used as an index of financial development, the result of the study changes and oil no longer has a significant impact on the economy. However, this can be translated to an inefficient allocation of credit to the private sector.

How has oil revenue transparency been institutionalised in the developing world, why and to what effects?And what explains the outcomes of such processes? These are the main questions this dissertation will seek to answer using as its case study Angola, Africa's second largest oil producer and a key case at the centre of global demands for oil revenue transparency in the sub-region.

In an oil exporting developing country the issue of how to stabilise the domestic economy from oil market volatilities has been a big concern for both scholars and policy makers during the last two decades. Modelling the behaviour of key arguments involved in the transmission mechanism of oil revenues into the domestic economy is a necessary introduction to dealing with this problem. On the specification point of view, previous empirical works in this area show little concern over a process that takes the variables back to their steady state positions. This leaves long run equilibrium values of the variables involved in this processes undefined. This thesis attempts to provide a careful analysis with empirical evidence of the issue of the macroeconomic effects of oil revenue fluctuations on key economic variables such as domestic and foreign prices, money demand equation, exchange rates and nonoil gdp growth set in a Dutch Disease framework for the Iranian economy during 1960-1990 period. The analysis, using annual data, employs modern econometric techniques (such as cointegration and error correction) to examine dynamics (short run) and static (long run) components of:these variables in connection with oil revenue fluctuations. Two modified versions of the Purchasing Power Parity and conventional money demand relationships are used to model black market exchange rate and monetary aspects of oil revenue changes, respectively. To model domestic price movements, we experiment with 2 long run equilibrium positions, inverted money demand function and reversed PPP relationship. PPP appears as a valid model of the long run black market exchange rate and domestic prices determination. We also find strong supportive evidence for conventional model of real money balances. The main conclusions are: increases in oil revenue (i) depress black market exchange rate asymmetrically; (ii) suppress domestic inflation directly and then pull it up indirectly through higher foreign inflation and a more depressed exchange rate; (iii) have a contractionary effect on non-oil real gdp growth; and (iv) change real money balances with a small elasticity.

The oil and gas multinational companies (MNCs) in the Niger Delta continue to face numerous challenges operating in the region, especially concerning the loss of revenue. Based on the resource dependence theory, the purpose of this correlational study was to examine the relationship between oil theft, pipeline vandalism, security costs, and revenue. Eighty-eight mid- to high-level managers of oil and gas completed the Factors That Affect Company Revenue instrument. The results of the multiple linear regression analyses indicated the model was able to significantly predict revenue, F(3,88) = 947,279.44, p < .001, R2 = 1.000. All 3 predictors contributed significantly to the model, with pipeline vandalism recording the highest beta value (Ã? = .553, p = .000), the oil theft predictor with the next highest beta weight (Ã? = .451, p = .000), and the security costs predictor with the next highest beta weight (Ã? = .387, p = .000). The leaders of the oil and gas MNCs could use the outcome of this study in creating strategies and policies that guide their operations in the region, which would improve the relationship with host communities and mitigate their efforts in reducing the loss of revenue. Improved relations would result in a reduction of oil theft, pipeline vandalism, and security costs, thereby reducing revenue losses. The implication of positive social change includes implementation of more corporate social responsibility strategies and improving the economy of the region and the livelihood of the host communities.

Extractive industries (including oil, gas and mining) generally afford an opportunity for the host government to generate the revenue to fund sustainable growth and development. It is therefore not surprising for conventional economic theory to suggest this is a readily available revenue source for resource blessed countries. However, contrary to this reasonable expectation, several of these economies were found to be suffering a financial handicap. Nigeria, despite being the largest crude oil producer in Africa and the tenth largest in the world, has so far found realising the full financial benefits of this nature’s gift unattainable. Using both qualitative and quantitative data as well as grounded theory in the analysis of the qualitative data, this research work has been carried out to develop a model of Nigerian oil industry using System Dynamics modelling methodology in order to understand these challenges. Specifically, the research develops an System Dynamics model to capture and quantify the various potential revenue streams to the Nigerian government from the oil (petroleum) industry with the objective of providing an explanatory model of the causal factors and then using the model to construct policy experiments in order to evaluate policies that may optimise these revenues. Findings show that, the development of the model for the Nigerian oil industry was successfully undertaken. The model was used to evaluate two government policy interventions that were aimed at improving government revenue from the industry. Moreover, a range of alternative scenarios which suggested increase of transparency policy, reduction of rate of gas flare and reduction of time taken for repairs of vandalised facilities were used in the model. The relevant system actors in the Nigerian oil industry were impressed with the modelling idea, particularly in its ability to represents all the economic challenges facing the industry, which offered a better understanding of the system they are dealing with. Overall, the model was able to depict some potential policy points thus serving as a decision-making tool.

This thesis investigates the relationship between oil revenue and macroeconomic policies and performance in Oman. The thesis contains five empirical chapters along with introduction, literature review and conclusion. The first empirical chapter looks into the dynamic relationship between oil revenue, government spending and economic activities. The results indicate oil revenue has immediate and significant impact on both the country s GDP and the government expenditure. The government expenditure also has significant impact on the GDP. The second empirical chapter examines the validity of the Wagner s Law and the Keynesian hypothesis in regards to the relationship between the government spending and economic performance. The chapter uses both aggregated and disaggregated government expenditure where the data are divided into recurrent and capital investment. The findings show that there is a long run-relationship between the government spending and the GDP for the period covered. The causality analysis suggests that public investment causes economic growth, but the recurrent expenditure is insignificant. The third empirical chapter investigates the impact of government spending on economic performance where the government spending was decomposed into health, education and militaryexpenditure. The results of these components of the government expenditure and along with an index of openness have long-run relationship with GDP. The short-run coefficient on military spending is insignificant and that of health is negative and significant. However, the long-run coefficients are all positive and significant, except that of military. The fourth empirical chapter analyses the relationship between government expenditure and oil revenue in Oman. The disaggregated government expenditure of health, education and military are used for the analysis in order to see the response of each component to oil revenue changes. The results show that, although all the components responded positively to a positive oils revenue shock, it is the military component that has recorded highest response with more persistence. The fifth chapter investigates the relationship between the current account and the fiscal deficits in Oman. The chapter uses a threshold cointegration technique that is capable of capturing non-linearity and asymmetric adjustment between the series. The estimated results show that there is a long-run relationship between the current account and fiscal deficits in Oman and that adjustment between the series is asymmetric. It is found that upward adjustment is much faster than downward adjustment.

The aim of this study is to identify the effects of the volatility of oil prices and exchange rates on foreign trade revenue of a few selected Eurasian Economies. These countries are oil and natural gas exporting countries and getting most of their trade revenue from exporting these commodities. The effects of sharply falling oil prices since June 2014 and depreciating exchange rates on these countries’ external trade were analyzed by using alternative econometric models. The sample of this analysis covered the period from June 2014 when oil prices has started falling sharply – till June 2015 in which still world oil price is lower than the price of 140-150 dollars for per gallon in the previous years. Decreasing prices basically destabilize the revenues of these states since approximately two third (2/3) of their export revenue and substantial part of their budget revenue that comes from oil and natural gas. In Russian economy falling prices of oil depreciates both public revenue and economic activity. This means predominantly depending on one commodity for export and foreign trade makes these countries’ economies in dependence of that commodity’s price and makes these economies so vulnerable to global crisis and price volatilities. In order to avoid from this situation, these countries should divert their production and increase in variety for exporting goods.

Abstract This study aims to propose an intelligent operational advisory solution that guides the plant operation team to optimal HPPT/LPPT pressure settings that compensate for the variation in ambient temperature effect to maximize plant revenue. Traditional industry practice is to operate a gas-oil-separation-plant (GOSP) at fixed operating conditions ignoring the variation in the ambient temperature (Ta) leading to a loss in oil recovery and associated revenue. The variation of ambient temperature (Ta) highly affects the separation process, where ambient temperature varies greatly from summer to winter. To develop a correlation, a GOSP model was constructed by OmegaLand dynamic simulator using a typical Saudi Aramco GOSP design. Oil recovery values were determined by running the process simulation for a typical range of high-pressure production trap (HPPT), low-pressure production trap (LPPT), and ambient temperature (Ta). Then, an intelligent approach was built to determine the optimum pressure of LPPT and HPPT units for each ambient temperature condition using an artificial intelligence technique. Results show that liquid recovery decreases with an increase in ambient temperature at constant HPPT and LPPT pressures, indicating adjustment in HPPT or LPPT pressure responding to the temperature variations can improve the oil recovery. At constant LPPT pressure and ambient temperature, the oil recovery increases with an increase in HPPT pressure until it reaches the optimum value and then decreases with further increase in the HPPTpressure suggesting that there is an optimum HPPT pressure at which oil recovery is maximum. At fixed ambient temperature and fixed HPPT pressure, liquid recovery increases with increasing LPPT pressure until it reaches the optimum value, and then it decreases with further increase in the LPPT pressure suggesting that there is an optimum LPPT pressure at which oil recovery is maximum.

The argument of natural resources’ curse explains that natural resource wealth of the country, leading to a kind of inertia in the economy causes “spendthrift” position. Accordingly, in the first place, the discovery of natural resources and its price rise have positive repercussions on country’s income and welfare. In the long run, obtained this easy enrichment may well lead to remain barren of other sectors and also affect negatively on diversification of national income and export in natural resource-rich countries. In this study, along with the collapse of the former eastern bloc, the functioning of the argument of natural resources’ curse in the natural resources-rich four transition economies, as the subject of descriptive study was conducted. In the literature of natural resources’ curse, with creating crowding-out effect, natural resources income might well brake to the development of other sectors. In addition, this situation is defined such that with increasing weight of defense industry among other sectors in aggregate income and employment, also not transferred to the social and physical infrastructure investment, particularly in education. In this study, it is examined whether there is oil prices sensitivity on the export, employment, public expenditure and national income in natural resource-rich transition economies. From the analysis results, it can be said that there is significant movements between oil prices and chosen variables and considering those findings, strong/powerful of natural resources’ curse is on process for chosen transition economies.

Azerbaijan, Russia and Kazakhstan as Post-Soviet countries are known fortheir oil-gas industry and its huge share in their economies. Considering these mentioned points, these countries are supposed to be the most relevant countries for common analysis. The role of social related expenditures in the state budgets was examined throughout the years for all three countries comparatively. By this analysis, it is targeted to define the differences and similarities in budget structure of these countries. Due to specific relevant structures and to resource-rich points, these countries have different revenue and expenditure policies than other post-soviet countries. These countries manage oil revenues to improve social-economic conditions of the country. Accordance of increasing oil revenues, education, health, and social defense expenditures as main social expenditure types in these countries increased until recent oil price shocks. Considering huge share of oil sector in these countries, it is crucial to examine the impacts of recent decline of oil prices on social expenditures in these countries. In this study, share of social related expenditures in the budget of these countries are comparatively analyzed in the period 1992 and 2015 years.

Nigeria has sought to diversify its economy away from dependence on oil as a major source of government revenue through agricultural commercialisation. Agriculture has been a priority sector because it has very high growth potential and the greatest potential for employment and export revenue. The cocoa and rice value chains are central to the government’s engagement with agriculture to achieve these objectives. This paper sets out to investigate the underlying political economy dynamics of the commercialisation of the cocoa and rice value chains in Nigeria in terms of smallholder farm households’ shift from semi-subsistence agriculture to production primarily for market, and predominantly commercial medium- and large-scale farm enterprises complementing or replacing smallholder farm households.

This paper uses a model of intergenerational accounting to simulate the intergenerational distribution of oil wealth in Venezuela. Venezuelan oil production does not seem to follow an optimal extraction path. Nevertheless, this is true if we do not consider what the government does with the resources received from the oil sector. In this paper we explored the interaction of oil policy and fiscal policy using an intergeneration accounting model. We found that these interactions could explain certain outcomes. In particular, the model could explain why the sector was open for investment in 1991 and then “re-nationalized” in 2001. Results suggest that when fiscal policy could leave an important burden to future generations, voters seem to favor a more tax oriented oil policy, leaving the oil in the subsoil.

Since April 2016, The European Union and the Oxfam Pro-Resilience Action Project in Kebbi and Adamawa States, Nigeria, have supported poor smallholder rural farmers to improve their agricultural productivity. The project has a specific focus on increasing crop yields per hectare for better land usage, as well as ensuring farmers possess the skills they need to maintain good agricultural practices, such as inputs utilization and climate mitigation strategies, as well as an information-sharing system on weather and market prices. The project uses a Farmer Field School model that continues to serve as a viable platform for rural farmers to access hands-on skills and basic modern farming knowledge and techniques. The case studies presented here demonstrate a significant increase in farmers’ productivity, income and resilience. This approach should be emulated by governments and private sector players to achieve impact at scale in Nigeria’s agricultural sector, which is the country’s top non-oil revenue stream.

The last decade has brought a row of substantial changes that have profound implications for the traditional hydrocarbon resource-rich economies. Economic conditions may change radically either throughout a decade or within months. The question is whether there is no other option for a hydrocarbon resource-rich economy than to be held hostage to the fluctuations in global oil prices. The general answer to a changing environment is: Adapt! From the macroeconomic perspective, this means diversifying the economy to broaden the income base and significantly reduce the dependence on oil revenues. The Saudi Vision 2030 represents a complex plan for substantial socioeconomic adjustments that are about to move the economy toward a more diversified and sustainable one. This discussion paper examines the preferred diversification paths for the Saudi economy in more detail, with a focus on the foreseen adjustments in the sectoral composition of the economy along with broader macroeconomic shifts. The evaluation of the foreseen diversification impacts is based on the updated Vision 2030 Input-Output Table that maps the changing structure of the Saudi economy over the coming decade. We discuss the assumed expansion of the diversification frontrunners, their changing contribution to the overall economic activity and identify the preferred diversification paths for the Saudi economy. The advances in economic diversification are measured by applying the Shannon-Weaver index to sectoral GDP and household income. The expected sectoral changes are wide-reaching, so the basic macroeconomic relations are also subject to adjustments. We also conduct a sensitivity analysis to examine the effects of the foreseen diversification on the resilience of the Saudi economy to external shocks.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.