## EXECUTIVE SUMMARY

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### Chapter 1: Fiscal Policy for a Changing Global Economy
- Over the past decade, fiscal policy emphasized macroeconomic stabilization in response to shocks, notably the global financial crisis, with less emphasis on reforms to foster long-term inclusive growth by adapting to changing demographics, advancing technology, and deepening global integration.
- Current challenges noted:
  - Public and private debt hover near historical peaks.
  - Long-term growth and development prospects are uninspiring.
  - Inequality remains striking.
- With global growth slowing and uncertainty rising, fiscal policy should:
  - Prepare for possible downturns by balancing growth and sustainability objectives.
  - Put more emphasis on reforms to adapt to a fast-changing global economy.
  - Pursue inclusive and growth-friendly budget recomposition to upgrade tax, social spending, and active labor market policies, and invest in infrastructure for better public service delivery.
  - Strengthen international cooperation on multilateral issues including corporate taxation, climate change, corruption, and achieving the 2030 Sustainable Development Goals (SDGs).

### Preparing for the Next Downturn
- Global expansion has softened; growth is expected to slow this year in several large economies (China, euro area, United States), while remaining firm in India and parts of sub-Saharan Africa.
- Downside risks have risen, mainly from unresolved trade tensions, heightened policy uncertainty, and financial market volatility.
- Public debt remains high in advanced economies and has increased in emerging market and developing economies.
- Major economies have turned to expansionary fiscal policies (China, euro area, United States); tighter financial conditions and concerns over fiscal sustainability have pushed up borrowing costs in vulnerable advanced, emerging market, and frontier market economies.
- Policy guidance by situation:
  - Where actual output exceeds potential (United States), or borrowing costs are high and financing needs are large (Brazil, Italy), and where enhancing market access remains important (Argentina): growth-friendly fiscal adjustment to reduce debt vulnerabilities and build buffers.
  - Where there is some fiscal space and risk of a sharper slowdown: limited, high-quality fiscal stimulus (Australia, Germany, Korea), possibly coupled with a credible medium-term consolidation plan (China, Japan).
  - In low-income developing countries: fiscal policy should support development objectives subject to financing constraints.
  - If a severe downside scenario materializes: available monetary policy tools could be complemented with fiscal easing by countries with appropriate fiscal space and financing conditions; in the euro area, a synchronized fiscal response, appropriately differentiated across member countries, can strengthen the area-wide impact.

### Adapting to Global Trends
- Key trends reshaping the global economy: shifting demographics, rapid technological progress, and rising global economic integration.
- Policy implications:
  - Advanced and many emerging market economies face aging populations, raising concerns about the sustainability of public pensions and healthcare.
  - Low-income developing countries and several emerging market economies must create jobs and upgrade public infrastructure, education, and healthcare for rapidly expanding and urbanizing populations.
  - Social spending and tax policies in all countries need to keep pace with labor and product market changes from technological advances and deeper trade and financial links.
- Fiscal adaptation and budget recomposition where budgetary room is limited:
  - Reprioritizing expenditures to achieve cost savings by cutting wasteful spending and curbing corruption.
  - Removing fuel subsidies through efficient pricing could gradually yield up to 4 percent of global GDP in additional fiscal resources.
  - Public financial management reforms can expand the fiscal envelope through efficiency gains.
  - Managing public sector assets more effectively could yield up to an estimated 3 percent of GDP a year in additional revenue in some countries.
  - In emerging market and developing economies, revenue mobilization is important given infrastructure and social spending needs to meet SDGs.
  - Sub-Saharan African countries could raise, on average, 3 to 5 percent of GDP in additional revenue over the next five years through reforms that improve the efficiency of current tax systems.
- International cooperation priorities:
  - Multilateral approaches to taxation of multinational companies (including digitalized ones), climate change (which could be mitigated through carbon taxes), and corruption.
  - Coordinated international support and financing, combined with governance improvements in donor and recipient countries, to help low-income developing countries achieve SDGs.
  - A renewed effort to work within an improved multilateral structure to complement national policies.

### Chapter 2: Curbing Corruption
- Corruption—the abuse of public office for private gain—distorts state activities and undermines sustainable and inclusive economic growth.
  - Corruption enables tax evasion by some and shifts the burden to others.
  - Revenue losses can hamper governments’ ability to provide social spending.
  - Quality of public services and infrastructure is undermined when decisions are driven by bribes or nepotism.
  - Corruption erodes trust in government and can lead to social and political instability.
- Evidence on fiscal costs of corruption:
  - Comparing countries at similar income levels, the least corrupt governments collect 4 percent of GDP more in tax revenues than their peers with the highest levels of corruption.
  - If all countries today were to reduce corruption by a similar extent as those that reduced it over the past two decades, global tax revenues could be higher by $1 trillion, or 1¼ percent of global GDP; gains would likely be greater because lower corruption would increase economic growth, further boosting revenues.
  - Countries that reduced corruption significantly saw surges in tax revenues as a share of GDP (Georgia by 13 percentage points, Rwanda by 6 percentage points).
  - Less corrupt countries dedicate a higher share of resources to social spending; among low-income countries, the share of the budget dedicated to education and health is one-third lower in highly corrupt countries.
  - More corrupt countries overpay for building roads and hospitals, and their school-age students have lower test scores.
- Institutional and policy lessons to fight corruption:
  - Build a professional civil service based on transparent, merit-based hiring and remuneration procedures; leadership should set a clear tone at the top to promote ethical behavior.
  - Invest in high levels of transparency and independent external scrutiny to allow audit agencies and the public to provide effective oversight.
  - Focus on “hotspots” where corruption frequently occurs: public procurement, infrastructure, complex goods and services that are hard to price, natural resources, and public enterprises.
  - Improve several mutually supportive institutions simultaneously (for example, tax administration reforms yield greater payoff if tax laws are simplified and discretion by tax officials is reduced; integrity in the civil service and efforts to pursue tax evaders depend on timely and evenhanded court proceedings; fiscal transparency benefits from a free press).
  - Commit to improving institutions assiduously to reduce vulnerabilities to evolving corruption challenges; adopt new technologies to strengthen fiscal functions (budget processes, revenue administration, internal controls). Electronic procurement systems (e-procurement) can promote transparency and improve competition (examples: Chile, Korea).
- International cooperation to combat corruption:
  - Countries should be proactive in combating bribery by national companies that bribe officials in foreign countries, aggressively pursue anti–money laundering activities, and reduce opportunities to hide corrupt proceeds in opaque destinations.
  - Increase transparency in extractive industries (oil and mining) given large economic rents and the role of major international players.
  - Improve international exchange of information to fight tax evasion and to investigate and prosecute corrupt acts.
  - Donors and international institutions should strengthen their own transparency and help disseminate good practices in institution building.

*International Monetary Fund | April 2019*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2019/april/english/execsum.pdf_