Commodity price volatility has increased in recent years—especially for oil—following in large part the effects of the pandemic and the war in Ukraine.1 This volatility points to the need for an optimal fiscal policy response to commodity price shocks, especially for commodity-exporting countries.2

The main policy challenge faced by most of these countries is coping with commodity price volatility. Such volatility is transmitted to the economy through several channels, including fiscal and exchange rate policy.3 Moreover, highly volatile commodity prices generally result in volatile commodity-related revenue, especially in countries where such revenue constitutes a large share of total budget revenue. This often translates into volatile public spending (IMF 2015).