IMF Survey : IMF Must Contribute to Global Fiscal Policy Debate
June 9, 2014
- Vitor Gaspar, new head of IMF’s Fiscal Affairs Department
- Technical assistance, capacity building a priority for department
- Fiscal challenges differ across groups of countries
The IMF must provide high-quality fiscal services to its members, especially through continued technical assistance and capacity building work, says Vitor Gaspar, the new Director of the IMF’s Fiscal Affairs Department.
INTERVIEW WITH VITOR GASPAR
It must also contribute to the global policy debate on fiscal issues. Speaking to IMF Survey just days before taking up his new position, Mr. Gaspar—formerly Portugal’s Finance Minister—outlined his thoughts and priorities for the Department.
IMF Survey: You have served in a variety of senior positions over the years, most recently as Portugal’s Minister of Finance during a critical period. Tell us a bit about your background and what brought you to the Fund.
Gaspar: Since I completed my Ph.D. about 25 years ago I have been involved in policymaking. My first job, out of academia, was at the Portuguese Ministry of Finance in the late 1980s. I was appointed head of Economic Studies. At the same time I was deeply involved in European monetary affairs. When the Intergovernmental Conference that led to Maastricht was called I represented Portugal in the negotiations.
A few years later I joined the central bank of Portugal and stayed in central banking for more than two decades. The most rewarding post for me, was Head of Research at the European Central Bank. I was deeply involved in the design and review of the ECB’s monetary policy strategy.
I have also worked in Brussels for the European Commission, where I became convinced that to understand policymaking it is necessary to understand politics.
I am looking forward to my next challenge at the Fund. It is thrilling to take the lead of an internationally well-known center of excellence in public finance. It broadens my international experience to the global level.
IMF Survey: You are well acquainted with the Fund in your previous roles. What are your impressions of the institution and its staff?
Gaspar: In the late 1980s I was offered the opportunity to come to the Fund as a young economist. My perception was that the Fund offered an excellent environment for professional economists to flourish. I perceived the Fund as a global leader in policy-relevant economic thinking. That has not changed.
I interacted with Fund staff both when I was Head of Economic Studies at the Portuguese Ministry of Finance and as Head of Research at the ECB. But my richest experience was as Minister of Finance. During my tenure in 2011-2013, I interacted with staff mostly from the IMF’s European and Fiscal Affairs Department.
The interaction with the European Department was mostly in the context of the regular procedures foreseen for Fund-sponsored programs. But we also requested technical assistance. The main areas were tax administration; public expenditure; and public financial management. The advice we got was of very high quality. Results were quickly visible in our ability to improving tax collection and expenditure control.
IMF Survey: In your view, what are the major fiscal challenges facing the global economy right now?
Gaspar: There are different types of challenges. Some challenges have to do with strong evolutionary dynamics that affect many countries. The most salient example is demographics. The world is making a transition to a situation of stable or even declining population. Such transition has substantial effects on public finances. Given that these dynamics are slow but the implications are far-reaching this is an area for research work.
Other challenges have to do with areas where there are strong spillovers across countries. These include environment; natural resources, including water; and international taxation.
IMF Survey: Fiscal challenges also differ across different groups of countries.
Gaspar: Absolutely. For advanced economies high debt ratios are a cause for concern. The challenge here is to combine debt reduction with growth and employment creation. Unemployment, in particular, is a grave cause for concern. The Department is already undertaking considerable work in this area looking at the interlinkages between fiscal policy and unemployment.
In emerging economies there are potential adverse effects on debt dynamics coming from tightening external financial conditions and slower growth. There are further contingent risks to consider, in particular in countries that experienced strong growth in bank credit. Another risk, in commodity exporting countries, comes from the reduction in tax revenues that would follow lower commodity prices. The critical challenge is to manage these head winds and risks so as to ensure that debt dynamics remain under control.
Low-income countries face a distinct structural challenge. They face increasing demand for high-quality public services and infrastructure. In order to face these demands it is necessary to improve the ability to mobilize domestic revenues. A successful transition is necessary for stability and sustainable (and inclusive) growth.
IMF Survey: What do you see as the Fiscal Affairs Department top priorities? Where would you like the Department heading in the future?
Gaspar: I am just starting. I will have a better answer in a few months.
At a very general level the priority of Fiscal Affairs Department – its mission – is to provide high-quality services to the Fund’s member countries either directly or through other IMF departments.
It is also crucial to continue technical assistance and capacity building work. At this point more than 100 countries benefit from the department’s technical assistance work.
In addition, the Department must contribute to the policy debate at the global level.
IMF Survey: What are some of our hobbies and activities that help balance your life?
Gaspar: Being with other people especially my family is very important. I enjoy reading, listening to music and practicing sports. I play tennis regularly and go to the gym.