A Balancing Act: Reform Options for Paraguay’s Fiscal Responsibility Law
IMF Working Papers, November 16, 2016
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- A Balancing Act: Reform Options for Paraguay’s Fiscal Responsibility Law
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Bibliographic details
- Authors: Antonio David, Natalija Novta
- Published: November 16, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475555158.001
Key findings and purpose
- Paraguay faces a trade-off between building fiscal credibility and amending the existing fiscal rule to accommodate infrastructure investment and provide space for countercyclical policies.
- The paper discusses several alternative fiscal rules for Paraguay and presents simulations of debt trajectories in each case, assuming a baseline and three deterministic shock scenarios.
- Results suggest that potential modifications to make the fiscal rules more flexible in Paraguay should be accompanied by a number of safeguards that enhance credibility of the fiscal anchor and preserve sustainability.
- A supplementary Excel file is provided to replicate debt simulations under different fiscal rules.
Analytical approach and scenarios
- Fiscal rule alternatives are evaluated through simulations of debt trajectories.
- Simulations assume:
- a baseline scenario, and
- three deterministic shock scenarios.
- Simulations are replicable via the provided supplementary Excel file.
Substantive themes and policy implications
- Balancing credibility and flexibility:
- Building fiscal credibility requires a credible fiscal anchor.
- Allowing more flexibility to support capital spending and countercyclical policy increases the need for safeguards.
- Safeguards recommended (general framing in the paper):
- Enhance credibility of the fiscal anchor when rules are made more flexible.
- Ensure sustainability of public debt trajectories under alternative rules and shocks.
- Focus areas of reform consideration:
- Balance rule, deficit rule, deficit ceiling, ceiling rule, expenditure rule.
- Treatment of capital spending versus current spending in fiscal rules.
- Public financial management (PFM) legal and regulatory frameworks.
Subject classification and keywords
- Subject: Capital spending, Current spending, Expenditure, Fiscal policy, Fiscal rules, PFM legal and regulatory frameworks, Public financial management (PFM)
- Keywords: balance rule, capital expenditure, Capital spending, ceiling rule, Current spending, deficit, deficit ceiling, deficit rule, expenditure rule, Fiscal Governance, Fiscal Rules, Paraguay, PFM legal and regulatory frameworks, rule, WP
Content in this bundle
- A Balancing Act: Reform Options for Paraguay’s Fiscal Responsibility Law