## Taking Stock: Public Finances Now Stronger in Many Countries

_IMF Blog, October 9, 2012_

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**Canonical URL:** [Taking Stock: Public Finances Now Stronger in Many Countries](https://www.imf.org/en/blogs/articles/2012/10/09/taking-stock-public-finances-now-stronger-in-many-countries)

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## Bibliographic details
- Authors: Carlo Cottarelli
- Published: October 9, 2012

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### Overview of recent fiscal progress
- The slow global recovery is making fiscal adjustment more difficult, but significant progress has been made during the past two years in strengthening fiscal accounts after the 2008–09 deterioration.
- The IMF's latest Fiscal Monitor takes stock of this progress.

### Advanced economies: deficits and debt dynamics
- Deficits, adjusted for the economic cycle:
  - Fell by about ¾ of a percentage point of GDP in 2011 and 2012.
  - Projected to fall by about 1 percentage point of GDP in 2013.
- Despite lower deficits, public debt is still increasing in many countries because borrowing remains substantial and GDP growth is low.
- Debt ratios are rising, but at a slower pace than previously.

### Typology of advanced economies (three groups)
- Group 1 (blue line): countries with declining or stable public–debt-to-GDP ratios.
  - Pattern since 2007: deficits and debt initially increase; deficits then decline while debt ratio keeps rising; finally the debt ratio begins to fall as deficits stay lower.
- Group 2 (green line): countries where the debt ratio hasn’t started to fall yet but is about to do so.
  - Deficits are falling; the increase in the debt ratio is petering out; the debt level remains relatively low.
- Group 3 (red line): countries with larger fiscal imbalances.
  - In most of these countries deficits have started declining, but debt is high, or still rising, or both.

### Policy implications and recommended pace of adjustment
- Many countries, particularly in Group 3, will need to continue fiscal adjustment for several years.
- The necessary speed of adjustment depends on:
  - The size of fiscal imbalances.
  - The degree of market pressures.
  - The state of health of the overall economy.
- In general, a relatively gradual pace of fiscal adjustment is preferable given persistent economic weakness.
  - For the United States, maintaining a gradual pace requires avoiding the “fiscal cliff” of automatic deficit reduction and timely action to raise the debt ceiling.

### Emerging economies
- On average, emerging economies’ fiscal deficits and debt are well below those of advanced economies.
- Most emerging economies will pause fiscal adjustment in 2012 and 2013:
  - The average fiscal adjustment in these countries, which had been sizable in 2010 and 2011, will be almost zero in 2012 and 2013.
- Several emerging economies still run very large primary deficits despite years of historically strong growth, indicating revenues are insufficient to cover non-interest expenditure.
- When downside risks to global growth recede, these countries will need to resume efforts to reduce fiscal weaknesses.

*Source: Taking Stock: Public Finances Now Stronger in Many Countries — Carlo Cottarelli, October 9, 2012.*

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## References

- [slow global recovery](http://www.imf.org/external/pubs/ft/survey/so/2012/RES100812A.htm)
- [Fiscal Monitor](http://www.imf.org/external/ns/cs.aspx?id=262)
- [https://www.imf.org/wp-content/uploads/2012/10/3groups.jpg](https://www.imf.org/wp-content/uploads/2012/10/3groups.jpg)
- [https://www.imf.org/wp-content/uploads/2012/10/fm-2.jpg](https://www.imf.org/wp-content/uploads/2012/10/fm-2.jpg)
- [speed of adjustment](http://blogs.imf.org/2012/04/20/making-goldilocks-happy/)
- [fiscal cliff](http://blogs.imf.org/2012/08/08/u-s-fiscal-policy-avoiding-self-inflicted-wounds/)

_Source: https://www.imf.org/en/blogs/articles/2012/10/09/taking-stock-public-finances-now-stronger-in-many-countries_