United Arab Emirates; Danforth, Medas, and Salins 2016). Compared with previous episodes of declining oil prices, the impact on public finances in EMDE oil exporters during the 2014–16 episode was larger, reflecting the magnitude and duration of the oil price decline. The effect was compounded in some countries by weaker initial fiscal positions. Fiscal sustainability gaps continued to widen in 2015 and 2016, and government debt ratios rose on average by 11.4 percentage points, compared with an average of only 0.9 percentage point in past episodes (IMF 2017a; World Bank 2017a).

The deterioration in budget deficits and fiscal sustainability gaps was greater in oil-exporting EMDEs with higher reliance on oil-related revenues, while countries with more flexible exchange rate regimes generally fared better, in part because real exchange rate depreciation mitigated revenue declines and spurred needed adjustment within the private sector (Figure 8). A number of oil exporters that had previously built up buffers in sovereign wealth funds (SWFs) used such buffers to alleviate fiscal and exchange rate pressures (e.g., Algeria, Azerbaijan, Kazakhstan, Kuwait, Saudi Arabia, the United Arab Emirates; World Bank 2015d). Others chose to issue debt on international markets, as borrowing costs were low (Lopez-Martin, Leal, and Martinez 2016; Alberola- Ila et al. 2017).

Several countries also implemented tax reforms to compensate for the loss of government revenues and to insulate such funds from future oil price fluctuations. For instance, goods and services or value-added taxes were introduced (e.g. Malaysia, Saudi Arabia, the United Arab Emirates), while existing VAT rates were raised (Colombia). However, implementation has stalled in some cases (e.g., Bahrain, Kuwait, Oman, Qatar), while exemptions have limited revenue growth in others (Malaysia).

Expenditure cuts and tax hikes have helped lower the fiscal breakeven oil price in oil-exporting EMDEs since 2015, although the breakeven price remains higher than the medium-term forecast of $65/bbl in some countries (e.g., Bahrain, Saudi Arabia, Oman, the United Arab Emirates; Baffes et al. 2015; World Bank 2017b, 2017c, 2018b).

In oil-exporting advanced economies (e.g., Canada and Norway), the availability of fiscal buffers provided space to loosen fiscal stances, as measured by changes in the structural budget balance (i.e., the budget balance adjusted for the gap between actual and potential output levels). For example, Norway’s fiscal rule allows up to 4 percent of its SWF to be drawn down to fund fiscal deficits. This provided a countercyclical policy tool to support growth.

# **Structural policy**

The collapse in oil prices provided impetus for reforms, particularly of energy subsidies. In countries where such reforms were undertaken, energy subsidies represented nearly 6 percent of GDP before the 2014–16 oil price collapse. Between mid-2014 and end-2016, more than half of oil-exporting EMDEs introduced subsidy reforms, including the Middle East and North Africa (Algeria, Bahrain, Islamic Republic of Iran, Iraq, Kuwait, Oman, Qatar, United Arab Emirates, Saudi Arabia, Yemen), Sub-Saharan Africa (Gabon, Ghana, Nigeria, Sudan), East Asia (Bahrain, Malaysia), Latin America (Trinidad and Tobago), and Central Asia (Kazakhstan, Turkmenistan). Several oil exporters have reduced utility subsidies as well. In some cases—for instance, in GCC 10