Still Some Hurdles On The Fiscal Path
IMF Blog, October 9, 2013
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Bibliographic details
- Authors: Martine Guerguil
- Published: October 9, 2013
Overview
- Author: Martine Guerguil
- Date: October 9, 2013
- Theme: Global fiscal challenges five years after the crisis, focusing on advanced economies' remaining consolidation tasks, mounting fiscal pressures in emerging market economies, and the role of taxation and quasi-fiscal operations.
Advanced economies: progress and the remaining challenge
- Context:
- "Five years into the crisis, the fiscal landscape remains challenging."
- The IMF’s Fiscal Monitor finds deficit-cutting efforts and the first signs of recovery reduced fiscal stress in many advanced economies, but "debt ratios often remain at historical peaks."
- Key findings:
- "With the average deficit now lower by more than 4 percentage points of GDP compared to the height of the crisis, most advanced economies are well on their way to meeting their medium-term fiscal objectives."
- Countries that need to make the most progress on deficit reduction are "almost two-thirds of the way there"—with the exception of Japan.
- Fiscal difficulty index:
- An index of "fiscal difficulty" was created to gauge the relative difficulty of fiscal adjustment under various scenarios.
- The index examines:
- The difficulty in reaching a given primary surplus over a given period of time (vertical axis of the chart).
- The difficulty in maintaining that surplus for another given period of time (horizontal axis of the chart).
- Insight from the index:
- For most countries, "maintaining budget surpluses for the extended period of time required to bring debt ratios down is the most challenging, as 'adjustment fatigue' creeps in."
- This maintenance challenge is "particularly relevant in Europe, where economic growth remains weak."
Emerging market economies: mounting budget pressures
- Drivers of rising fiscal vulnerabilities:
- Deterioration in the interest rate and growth environment.
- "Growth forecasts have been revised down by as much as 1¾ percentage points on average."
- "Borrowing costs have increased, especially in Asia and in the Middle East and North Africa."
- Widening deficits and increased debt ratios as automatic stabilizers operated and fiscal stimulus was used to contain the crisis impact.
- Quasi-fiscal activities added vulnerabilities in some countries:
- Examples cited include "subsidized lending by state-owned banks or off-budget activities by local governments and other public institutions."
- Variations across emerging markets:
- Some countries: high debt and deficits → "pressing consolidation needs."
- Others: rising risks → emphasis on "initiating the consolidation process."
- Others: remain in a "relatively comfortable fiscal position."
- Consequences:
- "Overall, the scope for short-term discretionary fiscal action has but evaporated."
- "Continued demands for more and better public services in the developing world raise significant medium-term challenges."
Policy emphasis and next steps
- Priority actions implied by the analysis:
- Sustain budget surpluses long enough to bring debt ratios down, recognizing the risk of "adjustment fatigue."
- Address quasi-fiscal operations to reduce hidden fiscal vulnerabilities (e.g., subsidized lending by state-owned banks, off-budget local government activities).
- For emerging markets, begin or accelerate consolidation where appropriate, tailored to each country's fiscal position and risks.
- Improve tax systems: "countries must more than ever make sure they tax as efficiently, fairly, and effectively as they can."
- Forward-looking note:
- "The second part of the Fiscal Monitor looks in detail at how that can be done—and that will be the topic of another blog in a few days."
Source: Still Some Hurdles On The Fiscal Path (Martine Guerguil), October 9, 2013.
Content in this bundle
- iMFdirect博客: 财政道路仍存坎坷, 2013 年10 月9 日
- 財政の道に依然として立ちはだかるいくつかの障害; マーチン・ギルゲル, iMFdirect ブログ, 2013年10月9日掲載
- Fiscal Monitor: Taxing Times; October 2013
- 45762_CH01_Text.indd
- На бюджетном пути сохраняются препятствия, Мартина Гергиль
