Assessing Fiscal Stress
IMF Working Papers, May 1, 2011
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Bibliographic details
- Authors: Gabriela Dobrescu, Iva Petrova, Nazim Belhocine, Emanuele Baldacci
- Published: May 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455254316.001
Summary
- This paper develops a new index which provides early warning signals of fiscal sustainability problems for advanced and emerging economies.
- Unlike previous studies, the index assesses the determinants of fiscal stress periods, covering public debt default as well as near-default events.
- The fiscal stress index depends on a parsimonious set of fiscal indicators, aggregated using the approach proposed by Kaminsky, Lizondo and Reinhart (1998).
- The index is used to assess the build up of fiscal stress over time since the mid-1990s in advanced and emering economies.
- Fiscal stress has increased recently to record-high levels in advanced countries, reflecting raising solvency risks and financing needs.
- In emerging economies, risks are lower than in mature economies owing to sounder fiscal fundamentals, but fiscal stress remains higher than before the crisis.
Methodology and Indicators
- Index construction:
- Depends on a parsimonious set of fiscal indicators.
- Aggregation method: approach proposed by Kaminsky, Lizondo and Reinhart (1998).
- Coverage:
- Assesses determinants of fiscal stress periods, including public debt default and near-default events.
- Time frame: build up of fiscal stress over time since the mid-1990s.
- Country groups:
- Advanced economies are highlighted as having record-high fiscal stress recently.
- Emerging economies show lower risks than mature economies but remain above pre-crisis levels.
Key Findings
- Fiscal stress trends:
- Fiscal stress has increased recently to record-high levels in advanced countries.
- In emerging economies, fiscal stress remains higher than before the crisis despite lower risks relative to mature economies.
- Risk drivers:
- Raising solvency risks and financing needs are associated with the rise in fiscal stress in advanced countries.
- Comparative assessment:
- Emerging economies benefit from sounder fiscal fundamentals relative to mature economies, contributing to lower risks.
Subject Areas and Keywords
- Subject: Financial crises, Fiscal risks, Government finance statistics, Macro-fiscal analysis, Public debt
- Keywords: debt, default, economy, emerging economy, WP
Source: IMF Working Papers — "Assessing Fiscal Stress" (Working Paper No. 2011/100, May 1, 2011).