A Framework for Assessing Fiscal Sustainability and External Viability, with An Application to India

By Karen Elizabeth Parker, Steffen Kastner

October 1, 1993

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Karen Elizabeth Parker, and Steffen Kastner. A Framework for Assessing Fiscal Sustainability and External Viability, with An Application to India, (USA: International Monetary Fund, 1993) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a simple macroeconomic simulation model which can be used to evaluate alternative fiscal strategies and their implications for external viability. It attempts to bridge the gap between the literature on fiscal sustainability and the demands of operational work. The framework, developed in a spreadsheet format, generates estimates of public spending compatible with identified targets for growth, inflation and domestic and foreign borrowing. The difference between the spending path consistent with these targets and that based on current policies is the fiscal adjustment required to meet the authorities’ macroeconomic objectives. Alternatively, the framework can be used to assess the implications for inflation, interest rates and public indebtendess of a given spending path. Finally, one can analyze the impact of financial reform on fiscal and external performance. The model is applied to India to illustrate the types of simulations that may be conducted.

Subject: Economic sectors, Financial services, Fiscal policy, Inflation, Prices, Public debt, Public sector, Real interest rates

Keywords: Balance of payments projection, Balance of payments target, Balance of payments viability, Current account, Debt service, Default premium, Deficit target, Foreign currency, High-inflation context, High-inflation scenario, Inflation, Inflation profile, Interest spending, Long-run inflation, Long-term debt, Money demand, Private sector, Public sector, Real interest rates, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1993/078
Stock No:

WPIEA0781993
ISBN:

9781451850055
ISSN:

1018-5941

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