## Still Some Hurdles On The Fiscal Path

_IMF Blog, October 9, 2013_

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**Canonical URL:** [Still Some Hurdles On The Fiscal Path](https://www.imf.org/en/blogs/articles/2013/10/09/still-some-hurdles-on-the-fiscal-path)

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- [Markdown version](/en/blogs/articles/2013/10/09/still-some-hurdles-on-the-fiscal-path/index.md)
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## Bibliographic details
- Authors: Martine Guerguil
- Published: October 9, 2013

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### 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.*

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## Content in this bundle

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## References

- [https://www.imf.org/wp-content/uploads/2013/10/difficulty-of-long-term-fiscal-consolidation.jpg](https://www.imf.org/wp-content/uploads/2013/10/difficulty-of-long-term-fiscal-consolidation.jpg)
- [https://www.imf.org/wp-content/uploads/2013/10/debt-and-cyclically-adjusted-primary-deficit.jpg](https://www.imf.org/wp-content/uploads/2013/10/debt-and-cyclically-adjusted-primary-deficit.jpg)

_Source: https://www.imf.org/en/blogs/articles/2013/10/09/still-some-hurdles-on-the-fiscal-path_