## fmexs

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### Chapter 1: Saving for a Rainy Day — Overview
- Strong and broad-based growth provides an opportunity to begin rebuilding fiscal buffers now, improve government balances, and anchor public debt.
- Strengthening fiscal buffers in the upswing will create room to provide fiscal support in an eventual downturn and will prevent fiscal vulnerabilities from becoming a source of stress if financial conditions deteriorate.

### High Debt Is a Concern — Key findings and statistics
- Global debt reached the record peak of US$164 trillion in 2016, equivalent to 225 percent of global GDP.
- The world is now 12 percent of GDP deeper in debt than the previous peak in 2009, with China as a driving force.
- Public debt is an important contributor to the surge in global debt, reflecting the economic collapse during the global financial crisis and the policy response, as well as the effects of the 2014 fall in commodity prices and rapid spending growth in emerging markets and low-income developing countries.
- Debt-to-GDP levels by group:
  - Advanced economies: 105 percent of GDP on average—levels not seen since World War II.
  - Emerging market and middle-income economies: close to 50 percent of GDP on average—levels last seen during the 1980s debt crisis.
  - Low-income developing countries: average debt-to-GDP ratios have been climbing rapidly and exceed 40 percent as of 2017.
- Nearly half of debt in low-income developing countries is on nonconcessional terms, which has resulted in a doubling of the interest burden as a share of tax revenues in the past 10 years.
- Underpinning debt dynamics for all countries are large primary deficits, which reached record levels in the case of emerging market and developing economies.
- High government debt and deficits increase vulnerability to a sudden tightening of global financing conditions and to large, unexpected shocks to public debt-to-GDP ratios, exacerbating rollover risks.
- Large debt and deficits hinder governments’ ability to implement a strong fiscal policy response during a downturn; historical experience shows a weak fiscal position increases the depth and duration of recession.

### Enhancing Resilience and Buttressing Growth — Policy recommendations
- Decisive action is needed now to strengthen fiscal buffers, taking full advantage of the cyclical upswing in economic activity.
- As growth returns to potential, fiscal stimulus loses effectiveness while the cost of fiscal consolidation diminishes, easing the switch from expansion to consolidation.
- General guidance:
  - Allow automatic stabilizers (tax and spending that moves in sync with output and employment) to operate fully.
  - Make efforts to put deficits and debt firmly on a downward path toward medium-term targets.
  - Calibrate the size and pace of adjustment to each country’s cyclical conditions and available fiscal space to avoid an undue drag on growth.
- Country-specific notes:
  - Economies operating at or near potential output and with high debt-to-GDP: implement fiscal adjustment.
  - United States: where a fiscal stimulus is happening when the economy is close to full employment, keeping overall deficits above $1 trillion (5 percent of GDP) over the next three years—fiscal policy should be recalibrated to ensure that the government debt-to-GDP ratio declines over the medium term.
  - Where fiscal space is limited: undertake consolidation efforts to reduce fiscal risks, based on policies that will support medium-term growth.
  - A few advanced economies with ample fiscal space and operating at or close to capacity: can use fiscal policy to facilitate pro-growth structural reforms.
  - Commodity exporters: continue to adjust to ensure spending is aligned with medium-term revenue prospects despite the recent partial recovery in commodity prices.
  - Several low-income countries: make room in budgets to implement infrastructure plans by mobilizing revenues, rationalizing spending, and improving spending efficiency.
- Policies to lift medium-term growth:
  - Advanced economies: seek efficiency gains in spending, rationalize entitlements to make room for more public investment, incentives for labor market participation, and improvements in the quality of education and health services; broaden tax bases and upgrade tax design where beneficial.
  - Emerging market and developing economies: priority is to raise revenue to finance critical spending on physical and human capital and social spending.
  - All countries: promote inclusive growth to avoid excessive inequality that can impede social mobility, erode social cohesion, and ultimately hurt growth.
- Warning: recent fiscal adjustment in some countries has not prioritized growth-friendly measures, evidenced by the decline in public investment spending as a share of GDP among advanced economies and commodity exporters.

### Chapter 2: Digital Government — Opportunities and risks
- The world is becoming digital and so are governments, albeit at sharply different paces; almost all country governments now have national websites and automated financial management systems.
- Opportunities:
  - Greater availability and access to timely and reliable information can transform government operations.
  - Digitalization can reduce private and public costs of tax compliance and improve spending efficiency.
  - Adopting digital tools could increase indirect tax collection at the border by up to 1–2 percent of GDP per year.
  - Digitalization could help governments track down taxes on wealth sheltered in low-tax jurisdictions, estimated at an average of 10 percent of world GDP.
  - Although potential revenue gains from this tax base are low at current tax rates, digitalization could facilitate future tax collection on income at the source before it escapes tax authorities.
  - Experiences of India and South Africa show how digitalization can improve social protection and the delivery of public services.
- Challenges and risks:
  - The increasing digitalization of businesses—and the emergence of digital giants—may exacerbate challenges faced by the current international tax system, including questions about assigning taxing rights and whether destination (where final consumers reside) should play a more prominent role.
  - Digital interactions may impose a disproportionate burden on small businesses and vulnerable households with limited access to technology.
  - Digitalization creates new opportunities for fraud and disruption of government functions, including evasion of taxes and illegal claims to benefits.
  - Massive data breaches and intrusions of privacy have increased, highlighting vulnerabilities of public digital systems.
- Policy guidance:
  - Digitalization requires a proactive, forward-looking, and comprehensive reform agenda.
  - Governments must address political, social, and institutional weaknesses and manage digital risks.
  - Budget adequate resources to finance investments in digital infrastructure and cybersecurity.
  - International cooperation becomes even more necessary as digitalization advances.
- Closing note: Digitalization is an overwhelming trend likely to accelerate; governments can resist and adapt late, or embrace, foresee, and to some extent shape it.

*International Monetary Fund | April 2018*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/april/pdf/fmexs.pdf_