When it Rains, it Pours: Voracious Fiscal Procyclicality in Commodity Dependent Countries

Keynes' general wisdom regarding fiscal policies is to adopt countercyclical measures in response to fluctuating economic cycles: contractive during periods of boom to avoid overheating the economy and expansive during periods of recession to bolster economic activity. However, due to frequent external shocks as a consequence of increasingly complex global economic integration, emerging markets and developing economies -- especially commodity exporters -- tend to amplify the fluctuating cycle, by implementing procyclical fiscal policy. The degree of fiscal procyclicality in commodity dependent countries is twice above non commodity exporters (World Bank, 2023). How can these countries fail to control the supposedly stabilizing 'fiscal' measures? How much of an impact can it bring towards countries' economy? What does this imply for commodity exporters? It turns out that political-economy pressures as well as credit inability in worsening economic situations could be key to explaining this fiscal spiraling phenomenon.