## The Acting Chair’s Summing Up

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### Executive overview
- Executive Directors welcomed the opportunity to discuss the Fiscal Monitor, which they considered a valuable addition to the Fund’s toolkit for multilateral surveillance.
- Directors broadly agreed with the Fiscal Monitor’s main messages and policy recommendations.
- Key policy challenge: provide confidence that fiscal fundamentals will improve in the medium term without undermining the economic recovery.

### Assessment of the crisis response and current vulnerabilities
- Coordinated fiscal expansion in response to the global financial crisis prevented a more severe deterioration in global conditions.
- Resultant increases in fiscal deficits and public debt levels, particularly in advanced economies, are a source of vulnerability for the period ahead.
- Elevated public debt-to-GDP ratios and large financing needs in major advanced economies have so far been associated with low interest rates; Directors cautioned that as the economic recovery strengthens there may be upward pressures on interest rates.

### Planned adjustment for 2011 and policy flexibility
- Directors considered that, globally, the planned adjustment for 2011 strikes an appropriate balance between strengthening fiscal positions and avoiding an undue policy withdrawal.
- Policy flexibility remains warranted; individual countries need to calibrate fiscal adjustment according to their circumstances.
- Conditional guidance:
  - If economic growth falls significantly short of the central projections in the latest World Economic Outlook, countries with fiscal space should let automatic stabilizers operate freely.
  - If needed for the recovery to continue, some of the adjustment planned for 2011 may also have to be postponed.
  - Countries with limited room for maneuver or under acute market pressures should avoid delaying consolidation to prevent a further weakening of confidence.

### Emerging market and low-income country situations
- Fiscal fundamentals in most emerging market and low-income economies are generally more robust than in advanced economies, reflecting a less severe impact of the global crisis as well as earlier fiscal prudence.
- For a few emerging market and low-income countries facing fiscal challenges, early adjustment will be necessary.
- In some low-income countries, rebuilding fiscal buffers while protecting social and investment spending could be challenging without additional donor support.

### Debt structure, investor base, and market signals
- The maturity structure of public debt has stabilized for many countries.
- The share of debt held by non-residents appears to have declined, reflecting greater uncertainties for cross-border investment.
- Directors expressed concern about yields increasing in some euro area countries despite their improving fiscal outlooks.
- Highlighted risk: a more polarized market sentiment could amplify cross-country spillovers of financial market stress.
- Noted downside risk: stabilizing the public debt ratio at elevated post-crisis levels could lead to a period of slow growth and high interest rates, and a reversal of the relatively benign debt dynamics in the staff’s baseline projections.

### Medium-term fiscal plans and reform priorities
- Directors welcomed the medium-term fiscal adjustment plans in the G-20 and some advanced economies, noting that they are primarily expenditure-based.
- Suggested enhancements to credibility:
  - An explicit commitment to longer-term, country-specific debt targets and a timeline for achieving them.
  - Better articulation of envisaged measures, particularly steps to deal with looming pressures from health and pension spending, and to reform other social spending while protecting the most vulnerable groups.
- Where adjustment needs are greatest, envisaged measures could be based on a review of all expenditure areas.
- Staff simulations indicate that raising the retirement age could have a positive impact on potential growth and lead to a significant decline of the fiscal burden in the longer term.

### Budgetary institutions and policy frameworks
- Directors underscored the need to further strengthen budgetary institutions and policy frameworks.
- Possible instruments include adopting, where appropriate, fiscal rules tailored to country-specific circumstances or establishing independent fiscal agencies.

### Areas for further analysis highlighted by Directors
- Steps to increase revenues from value-added taxes.
- Use of the tax system to reduce systemic financial sector risk.
- Questions related to efficient carbon pricing.
- A number of Directors encouraged further analysis in these areas.

*Source: The Acting Chair’s Summing Up, Fiscal Monitor—Fiscal Exit: From Strategy to Implementation, November 1, 2010; Summing Up dated November 3, 2010.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/fm/2010/_fm1002sumuppdf.pdf_