{
  "title": "Act Now, Act Together",
  "publication": "IMF Blog, April 13, 2016",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2016/04/13/act-now-act-together",
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  "summary": "The April 2016 Fiscal Monitor shows public debt continues to rise worldwide; fiscal deficits have gone up in many countries.",
  "sections": [
    {
      "heading": "Worsening public finances",
      "content": "- The April 2016 Fiscal Monitor shows public debt continues to rise worldwide; fiscal deficits have gone up in many countries.\n- On average, public debt now exceeds the level observed during the Great Depression and is approaching the level immediately after World War II.\n- In emerging markets and low-income countries, fiscal deficits in 2016 are projected to be even higher than in 2009 during the global financial crisis.\n- The fiscal positions of commodity exporters have been especially hard hit by the collapse in revenues.\n- In the Middle East and North Africa, the cumulative fiscal balances of oil exporters alone are set to deteriorate by a staggering $2 trillion in the next five years, compared to the pre-crisis period 2004–08.\n- Major structural and cyclical forces affecting public finances:\n  - Continued weakness in global activity and entrenched low inflation pressures in advanced economies.\n  - The decline in commodity prices (about 35 percent in the past 12 months and 65 percent since mid-2014 for oil).\n  - The slowdown in trade.\n  - Emerging market and developing economies facing higher interest rates and dwindling capital inflows.\n  - Rising risks across almost all regions."
    },
    {
      "heading": "Three challenges",
      "content": "- Policymakers must adapt to new realities; \"no one-size-fits-all.\" Appropriate responses vary across countries depending on the nature of the fiscal challenge.\n\n- Challenge 1: Avoiding the low growth-low inflation trap\n  - Advanced economies face the triple threat of low growth, low inflation, and high public debt, creating potential self-reinforcing downward spirals.\n  - Recommended three-pronged approach:\n    - Expansionary monetary policy.\n    - Growth-friendly fiscal policy (examples: higher infrastructure investment; using public funds to compensate losers from reform to support implementation).\n    - Productivity-enhancing structural reforms.\n  - In countries with fiscal space, budgets could do more to support aggregate demand; where fiscal space is lacking, governments should protect growth by avoiding cuts to highly productive public spending and scaling down less efficient programs.\n  - If global macro conditions worsen substantially, individual country responses may be insufficient; policymakers should act quickly and act together with coordinated demand- and supply-side policies, implemented simultaneously to amplify benefits.\n\n- Challenge 2: Addressing the big and lasting drop in revenues\n  - Between 2014 and 2016, about two-thirds of all countries experienced a decline in their revenue-to-GDP ratios.\n  - Commodity exporters saw the largest revenue shortfalls—an average of 7 percent of GDP for oil exporters.\n  - With commodity prices likely to remain low for some time, producers must reduce public spending and align it with lower revenues.\n  - Adjustment can be less painful by:\n    - Mobilizing non-commodity revenues.\n    - Cutting poorly targeted and wasteful spending, including reforming fuel subsidies.\n  - Countries that have accumulated financial assets and face less market pressure can consolidate at a more gradual pace.\n\n- Challenge 3: Achieving development goals with constrained budgetary resources\n  - Almost half of low-income developing countries have a tax ratio below 15 percent of GDP.\n  - Low revenue mobilization limits funding for pro-growth spending and is often associated with weak institutional capacity.\n  - Building minimum tax capacity supports broader state and legal capacity; stable, broad-based taxation governed by clear rules is necessary for an effective budget process.\n  - Combined with improvements in expenditure efficiency, better revenue mobilization can help achieve the Sustainable Development Goals by enhancing health and education services and developing infrastructure.\n  - Practical measures for low-income countries include introducing or expanding the value added tax or the property tax, and strengthening tax compliance—areas where the IMF provides extensive technical assistance."
    },
    {
      "heading": "Medium-term objectives",
      "content": "- Two main objectives all countries should pursue over the medium term:\n\n  - Enhancing the resilience of public finances\n    - Make public finances less sensitive to shocks (e.g., drops in commodity prices or currency depreciations) by:\n      - Improving disclosure and analysis of risks through comprehensive, reliable, and timely public reporting.\n      - Developing and implementing risk management strategies to reduce the probability of adverse events and limit government exposure (example: introducing caps on government guarantees).\n      - Creating adequate cushions in budgets—\"provisions\"—as safety margins to cope with unexpected events.\n\n  - Promoting sustainable growth\n    - Raising medium-term growth is necessary everywhere; in advanced economies, a sustained increase in growth of 1 percentage point could bring debt ratios to pre-crisis levels within a decade.\n    - An IMF study suggests reforms of tax and expenditure policies could lift medium- to long-term growth by ¾ of a percentage point in advanced economies and even more in developing economies.\n    - Fiscal measures that support innovation and productivity can be powerful:\n      - Fiscal support to private research and development costing 0.4 percent of GDP to the budget can deliver 5 percent higher GDP in advanced economies in the long run.\n\n- Summary conclusion: Policymakers, individually and in concert, still have adequate policy tools to restore vigorous growth and build healthy, resilient public finances.\n\nSource: Act Now, Act Together — Vitor Gaspar, Luc Eyraud, April 13, 2016 (web overview).\n\n---\n\n Content in this bundle\n\n- Fiscal Policy and Long-Term Growth; IMF Policy Paper, April 20, 2015\n  - Fiscal Policy and Long-Term Growth; IMF Policy Paper, April 20, 2015 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Fiscal Policy and Long-Term Growth; IMF Policy Paper, April 20, 2015 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- April 2016 Fiscal Monitor\n- analysis in Chapter 2\n\nSource: https://www.imf.org/en/blogs/articles/2016/04/13/act-now-act-together"
    }
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    "Authors: Vitor Gaspar, Luc Eyraud",
    "Published: April 13, 2016",
    "The April 2016 Fiscal Monitor shows public debt continues to rise worldwide; fiscal deficits have gone up in many countries.",
    "On average, public debt now exceeds the level observed during the Great Depression and is approaching the level immediately after World War II.",
    "In emerging markets and low-income countries, fiscal deficits in 2016 are projected to be even higher than in 2009 during the global financial crisis.",
    "The fiscal positions of commodity exporters have been especially hard hit by the collapse in revenues.",
    "In the Middle East and North Africa, the cumulative fiscal balances of oil exporters alone are set to deteriorate by a staggering $2 trillion in the next five years, compared to the pre-crisis period 2004–08.",
    "Major structural and cyclical forces affecting public finances:",
    "Policymakers must adapt to new realities; \"no one-size-fits-all.\" Appropriate responses vary across countries depending on the nature of the fiscal challenge.",
    "Challenge 1: Avoiding the low growth-low inflation trap",
    "Challenge 2: Addressing the big and lasting drop in revenues",
    "Challenge 3: Achieving development goals with constrained budgetary resources",
    "Two main objectives all countries should pursue over the medium term:",
    "Summary conclusion: Policymakers, individually and in concert, still have adequate policy tools to restore vigorous growth and build healthy, resilient public finances.",
    "**Fiscal Policy and Long-Term Growth; IMF Policy Paper, April 20, 2015**",
    "[April 2016 Fiscal Monitor](http://www.imf.org/external/pubs/ft/fm/2016/01/fmindex.htm)",
    "[analysis in Chapter 2](https://blogs.imf.org/2016/03/31/imagine-what-fiscal-policy-could-do-for-innovation/)"
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