## Economic Preparedness: The Need for Fiscal Space

_IMF Blog, June 27, 2018_

## Source details

**Canonical URL:** [Economic Preparedness: The Need for Fiscal Space](https://www.imf.org/en/blogs/articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space)

## Other formats

- [Markdown version](/en/blogs/articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space/index.md)
- [Structured JSON version](/en/blogs/articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space/index.json)
- [Bundle manifest](/en/blogs/articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space/bundle-manifest.json)

## Bibliographic details
- Authors: Vikram Haksar, Marialuz Moreno-Badia, Catherine Pattillo, Murtaza Syed
- Published: June 27, 2018

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### Overview
- Authors: Vikram Haksar, Marialuz Moreno-Badia, Catherine Pattillo, Murtaza Syed
- Publication date: June 27, 2018
- Context: IMF staff developed a new framework for measuring fiscal space and tested it during 2017-2018 across a number of Article IV consultations.

### Measuring fiscal space
- Definition: Fiscal space is an estimate of “the amount of room countries have for temporarily increasing their budget deficits without jeopardizing their access to markets or the sustainability of their debt.”
- Key considerations in the IMF framework:
  - Composition and trajectory of public debt
  - Financing needs and ease of borrowing
  - Assets that can be drawn upon
  - Future spending commitments
  - Effectiveness of fiscal policy
  - Strength of fiscal institutions
  - Existence and design of fiscal rules, including the need for rules to be well designed and regularly reviewed
- Characteristics:
  - Fiscal space is not determined just by a country’s level of public debt.
  - Fiscal space is not static; it can vary with market and economic conditions, sometimes quickly and substantially.
  - A well-executed fiscal stimulus can produce a dynamic boost to economic activity that may improve the public debt-to-GDP ratio over time, thereby creating additional fiscal space.
- Output: The framework yields an assessment of the degree of fiscal space for a country at a given time, built around four stages (illustrated in an accompanying video on the source page).

### Who has it and who doesn’t
- Countries cited as having substantial fiscal space:
  - Australia
  - Germany
  - The Netherlands
  - Sweden
- Reasons cited for substantial fiscal space:
  - Access to stable and cheap funding from financial markets
  - Healthy public finances
  - Strong institutions
- Countries cited as having severely constrained fiscal space:
  - Brazil
  - Italy
  - Pakistan
- Reasons cited for constrained fiscal space:
  - Elevated risks related to funding from financial markets
  - Relatively high levels of debt, financing, or debt servicing needs
  - Risk of loss of market access if attempting active fiscal policy
- Countries with some but not extensive fiscal space:
  - China
  - The Philippines
  - Thailand
  - Russia
  - Saudi Arabia
  - The United States
- Rationale for intermediate assessments: Risks to funding or debt sustainability are not severe, but space is limited.

### Using fiscal space
- Distinction emphasized:
  - Having fiscal space ≠ obligation to use it.
  - Fiscal space is like “money in the bank”: it can be drawn upon in times of need but should not be used recklessly.
- Decision criteria for using fiscal space (outside the framework):
  - Separate cost-benefit analysis
  - Whether there is a legitimate need best met through fiscal policy rather than other measures
  - Adequacy of existing space given the risks the economy faces
- IMF policy advice examples:
  - Fiscal consolidation recommended in all countries with limited fiscal space.
  - Fiscal consolidation also recommended in several countries with some or substantial fiscal space when economies were in relatively strong positions or needed to rebuild buffers.
  - Use of fiscal space recommended where a strong case existed:
    - Support of longer-term growth in Germany, the Netherlands, the Philippines, and Thailand
    - To offset some potential costs from a needed phase of strong structural reforms in China
    - To allow a slower pace of fiscal adjustment for some oil producers

### Forward look
- The IMF’s road map for assessing fiscal space is intended to:
  - Provide the Fund’s membership with a regular sense of their room for maneuver
  - Assist countries in making appropriate policy choices tailored to their individual circumstances

*Source: Economic Preparedness: The Need for Fiscal Space (IMF blog, June 27, 2018).*

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## Content in this bundle

- **做好经济准备：对财政空间的需求; IMF blog; 2018年6月27日**
  - [做好经济准备：对财政空间的需求; IMF blog; 2018年6月27日 (Markdown version)](/external/chinese/np/blog/2018/062718c.pdf.md){rel="alternate" type="text/markdown"}
  - [做好经济准备：对财政空间的需求; IMF blog; 2018年6月27日 (PDF)](/external/chinese/np/blog/2018/062718c.pdf){rel="external" type="application/pdf"}
- **経済面での備え― 財政余力の必要性; ビクラム・ハクサー マリアルス・モレノ・バディア キャサリーン・パティロ ムルタザ・サイード; IMFブログ, 2018年6月27日掲載**
  - [経済面での備え― 財政余力の必要性; ビクラム・ハクサー マリアルス・モレノ・バディア キャサリーン・パティロ ムルタザ・サイード; IMFブログ, 2018年6月27日掲載 (Markdown version)](/external/japanese/np/blog/2018/062718j.pdf.md){rel="alternate" type="text/markdown"}
  - [経済面での備え― 財政余力の必要性; ビクラム・ハクサー マリアルス・モレノ・バディア キャサリーン・パティロ ムルタザ・サイード; IMFブログ, 2018年6月27日掲載 (PDF)](/external/japanese/np/blog/2018/062718j.pdf){rel="external" type="application/pdf"}
- **Kesiapan Ekonomi: Kebutuhan Akan Ruang Fiskal; IMF blog, 27 Juni 2018**
  - [Kesiapan Ekonomi: Kebutuhan Akan Ruang Fiskal; IMF blog, 27 Juni 2018 (Markdown version)](/external/lang/indonesian/np/blog/2018/062718i.pdf.md){rel="alternate" type="text/markdown"}
  - [Kesiapan Ekonomi: Kebutuhan Akan Ruang Fiskal; IMF blog, 27 Juni 2018 (PDF)](/external/lang/indonesian/np/blog/2018/062718i.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://www.imf.org/ar/News/Articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space)
- [Português](https://www.imf.org/pt/News/Articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space)
- [https://www.imf.org/wp-content/uploads/2018/06/BLOG-1024x600-Fiscal-Space-Globe-on-Currency-Martin-Barraud-iStock-by-Getty-96502248.jpg](https://www.imf.org/wp-content/uploads/2018/06/BLOG-1024x600-Fiscal-Space-Globe-on-Currency-Martin-Barraud-iStock-by-Getty-96502248.jpg)
- [a new framework](http://www.imf.org/en/Publications/Policy-Papers/Issues/2018/06/15/pp041118assessing-fiscal-space)
- [tested it during 2017-2018](http://www.imf.org/en/News/Articles/2018/06/26/pr18260imf-board-takes-stock-of-work-on-fiscal-space)
- [Article IV consultations](https://www.imf.org/external/about/econsurv.htm)
- [Assessing Fiscal Space - An Initial Consistent Set of Considerations](http://www.imf.org/en/Publications/Policy-Papers/Issues/2017/01/13/pp5080-Assessing-Fiscal-Space-An-Initial-Consistent-Set-of-Considerations)

_Source: https://www.imf.org/en/blogs/articles/2018/06/27/blog-economic-preparedness-the-need-for-fiscal-space_