Transcript

Washington, D.C.
October 8, 2014

VITOR GASPAR
Director, Fiscal Affairs Department
MARTINE GUERGUIL
Deputy Director, Fiscal Affairs Department
SANJEEV GUPTA
Deputy Director, Fiscal Affairs Department
WAFA AMR
Senior Communications Officer, Communications Department

Ms. Amr: Welcome, everybody. Thank you for coming to the Fiscal Monitor press conference. This is a live, on the record briefing.

I'm Wafa Amr, Communications Officer. Let me introduce next to me Vitor Gaspar, Director of the Fiscal Affairs Department. At the panel, as well, is Sanjeev Gupta, Deputy Director, and Martine Guerguil, Deputy Director.

Mr. Gaspar will give a few opening remarks, and then we will open the floor for questions.

Mr. Gaspar: Thank you. Good morning. Thanks for coming to this presentation of the October 2014 vintage of the Fiscal Monitor. Unemployment remains unacceptably high in many countries. It increased dramatically during the great recession. Global unemployment currently exceeds 200 million people, and an additional 30 million people are expected to be unemployed by 2018.

The most worrisome development is youth unemployment. There are examples of advanced economies in Europe where youth unemployment surged above 50 percent. In several developing economies, job creation does not absorb the large number of young workers entering the labor force every year. This puts unemployment at the top of the global policy agenda.

Faced with this immense challenge, we asked ourself can fiscal policy do more for jobs? Support to employment and economic growth requires action on multiple fronts. In some countries, particularly in Europe, reform of labor markets may be necessary to remove persistent rigidities. Fiscal policy cannot substitute for such reforms, but fiscal policy can work in tandem with broader structural reform efforts to support job creation.

The Fiscal Monitor highlights three possibilities.

First, fiscal policy can foster macroeconomic conditions that are supportive of economic activity and labor markets. For example, deficit reduction can be designed and timed to minimize negative effects on employment. Clearly, the adequate policy mix for each country needs to be tailored to its specific circumstances.

Second, fiscal policy can facilitate structural reforms in the labor market. How? Fiscal policy can offset the potential short-term economic costs of reform. It can also help build political consensus on reform. For instance, by compensating groups that may be adversely affected by the change.

One topic that is likely to gain salience going forward is the political economy of high public debt. But, back to our topic of today: Jobs and growth.

The effectiveness of fiscal policy in its supporting role for structural reform requires meeting certain conditions. In the Fiscal Monitor we emphasize the following:

It should not create debt sustainability risks or threaten credibility. The costs and benefits, the economic costs and benefits of reform need to be well identified. The fiscal costs that may be associated with reform need to be constrained in size and in time. And there needs to be sufficient certainty that reforms will be carried out to the end as announced.

Finally, the Fiscal Monitor focuses on a third support role that fiscal policy can play, which is to be an intrinsic part of the overall design of structural policy measures. And let me give you a couple of examples. In advanced economies, we find a carefully designed reduction in employer social security contributions on young workers can have a significant impact on youth employment. In emerging market and developing economies we find that removing tax barriers, providing basic public services and offering a greater access to finance and training, can help address challenges related to informality and low growth in labor productivity.

Let me conclude by saying a few words on the current fiscal conjuncture.

In the last six months interest rates have been low and volatility in bond markets has been subdued. This has helped ease immediate pressures on public finances in most countries. However, we are at a difficult juncture and underlying fiscal vulnerabilities and fiscal risks have continued to accumulate. In advanced economies debt levels are stabilizing but remain elevated. In some cases, debt exceeds 100 percent of GDP. So it is important to bring government debt down to safer levels. But it is also important to be mindful of the uneven recovery and the risk of persistent slow inflation in some countries, especially in the euro area.

In emerging economies, deficits and debt ratios are generally moderate, but still remain above precrisis levels. In some cases, there are risks to debt sustainability from off-budget transactions, and government guarantees. Many of these economies share the need to raise potential growth while rebuilding the fiscal buffers that were used during the crisis.

In low income developing countries, fiscal risks are generally modest. Here, efforts should be focused on mobilizing revenue, better budget prioritization, and higher efficiency of public spending. Some countries also need to strengthen fiscal governance. Overall, the challenges I've pointed to throughout my presentation call for smart fiscal policy. Smart fiscal policy is imperative for countries facing the difficult juncture of an Amy in this case recovery, weak potential growth, and very low inflation. Smart fiscal policy is one that supports jobs and growth, while bringing public debt down to sustainable levels. Smart fiscal policy is one that values public investment and facilitates structural reform.

Thank you. We are available to answer your questions.

Ms. Amr: We will take questions from the floor and online. Please introduce yourselves and your organizations.

QUESTIONER: The Italian government has just decided to cut labor tax, and now wants to continue by targeting employers. Is it the right way to go? Which side should the labor tax cut be to improve growth and employment?

Mr. Gaspar: What we find in the Fiscal Monitor is that fiscal instruments like labor taxation or social security contributions, have an effect on employment. What we document in the Fiscal Monitor is that when there are significant budget constraints, targeted measures to particular groups can be very effective. One example that we discuss in the Fiscal Monitor is the example of the Swedish reform of 2004 where they have reduced the social security contribution of young people, and we have a chart in the Fiscal Monitor that does show that young peoples' employment increased in Sweden quite substantially relative to the general employment in the population. So, one point that we make in the Fiscal Monitor is that targeted measures can work well and that the substitution effects can be contained.

In the case of Italy, it is very clear that the policy situation is constrained by a very high level of public debt. In 2014 we have a level of public debt to GDP above 100 percent, which is a very high number in the context of the euro area. And, we have a situation where the country faces a very important growth challenge. It is not only that Italy is growing very little in the last few years, Italy has actually grown very little for many years now, which shows that there is a need for comprehensive structural reform.

In the case of Italy, the reform program is to include measures that have to do with public administration, the functioning of the judiciary, labor market reform, and the example that you gave is in the context of labor market reform. Product market reform. And even privatization. So it is a very comprehensive set that includes all of these aspects. And clearly, the strategy has to encompass these various elements and can only be evaluated as a whole.

QUESTIONER: If I'm allowed, I'm going to address Mr. Gaspar in Portuguese.

What are the IMF’s recommendations for Portugal’s budget for next year, and also I’d like to know whether you think there’s space for 2015?

Mr. Gaspar: Thank you for your question. As you may know it is not customary for IMF officials to comment on developments in policies in their own countries. And, so, I will pass the floor to Sanjeev Gupta, who is going to answer your question.

Mr. Gupta: I was a little late in tuning in to the translation, but I think I got the gist of the question. Let me know if I'm not right, and I will be happy to answer it again.

One of the key things that the authorities should do going forward is to continue with the fiscal consolidation path for this and the next year, so as to bring the debt-to-GDP ratio to safer levels. According to the Fiscal Monitor, the debt-to-GDP ratio in 2014 is going to peak at about 131 percent of GDP, and will start to decline next year. So, one should continue with this process of fiscal consolidation, and in addition should persist with structural reforms so as to increase potential growth and create more job opportunities. And there is a favorable opportunity which has been created by the benign market conditions. This morning, the rate on ten year bills has come down to 3 percent. So these are favorable conditions which Portugal can use to implement structural reforms of the type that Mr. Gaspar described earlier, and that would help to move forward.

QUESTIONER: And I asked a very specific question, and it is the role of the IMF to give recommendations to these countries. So Mr. Gaspar, is there space for Portugal to cut next year? What are the IMF’s main recommendations for Portugal for next year?

Ms. Amr: I would like to remind you that there are regional press briefings on Friday where you can ask specific questions, as well.

Mr. Gupta: I thought I answered that question, which was that for 2015 the authorities should continue with their fiscal consolidation plan. There is no program relationship with the Fund anymore. But, from our view, we think the path which is there, they should continue following it, and they should also take the opportunity to implement some structural reforms.

QUESTIONER: You say that governments need to implement smart fiscal policies. Does that mean currently they're being stupid about their fiscal policies? And I ask that in somewhat joking form, but there is a serious nugget to it.

And secondly, are compressed borrowing costs in Europe masking the real risks, the economic risks that underlie the problems there?

Mr. Gaspar: Two questions. I will start with the second one. If you focus on Europe and you look at the adjustment that took place in the last three years you see that quite a substantial progress was achieved in fiscal adjustment. That was due to actions at the national level, but you also see a substantial institutional progress for Europe as a whole with important rules and procedures agreed as the European level.

This progress was fundamental in order to guarantee that the benign market conditions that we see at this point in time could be sustained and compatible with the degree of credibility that these policies have reached in markets. That is, it is the case that it took a tremendous amount of effort at national levels and also at the union level in order to reach this point. And, those efforts should not be underestimated.

The second point, which is worthwhile making, is that at this point in time, if you look at the aggregate fiscal stance in the euro area, the Fiscal Monitor makes the point that it is approaching neutrality. So, the amount of adjustment which is now in the pipeline is substantially less than in the past, which is something that we welcome, because it means that the fiscal drag is substantially less.

The third point I want to make is that clearly we see that the low bond yields that you refer to do make the immediate pressures on public finances lower, and that can be seen as an opportunity for structural reform exactly as Mr. Gupta commented on with the example of Portugal. So the point that benign financing conditions should be used to foster structural adjustment and structural reform, and can in some cases create room for public investment, is something that we very much emphasize and it is a very important point.

The last remark that I want to make is that I think you are absolutely right. It is important not to use the low levels of bond yields as an excuse for complacency. Indeed we make the point in the Fiscal Monitor that underlying vulnerabilities and risks have continued to accumulate and that those risks and vulnerabilities must be tackled, and I believe that was what you were driving at.

Your first and slightly more joking question about smart policy and whether we're implying that policies were not smart before, that is not the point. The point that we want to push for is that at this point in time the situation that fiscal policy makers face is particularly challenging. In many countries we have a weak recovery. In some countries we have even seen negative growth. In most countries potential output has been revised down. The growth of potential output is less than was thought some time ago. And, moreover, in some countries, in particular euro area countries, we have very low or even negative inflation. This is a very demanding environment for fiscal policy. At the same time, we must be in a position to promote employment and growth, and that requires investment. It does require structural policies. So, smart fiscal policy is trying to reconcile bringing public debt down to safer levels, with the need to support jobs and growth. It is like a catchphrase so that we will remember that we have this very important objectives to reconcile.

Ms. Amr: We will take an online question from the Dominican Republic.

What is the fiscal situation in the Latin America and the Dominican Republic in particular?

Ms. Guerguil: In Latin America the growth has disappointed and slowed down quite markedly. This is due in part to the lower commodity prices and the lower demand, therefore lower exports. Though, in many countries there has also been some domestic factors that have come into play.

Now, in most Latin American economies the fiscal situation is relatively weak and therefore there is relatively little margin for fiscal support to the economy. In fact, it would be quite important in many of them to rebuild confidence so to foster a recovery, not only on natural resources, but also in other sectors. This is broadly also the case for the Dominican Republic.

QUESTIONER: Brazilian primary surplus is low in the last months, and it is dependent on one-off revenues. How do you analyze Brazilian fiscal policy in the last year?

Ms. Guerguil: As you know, the 2014 budget targeted a primary surplus, so 1.9 percent of GDP, and what happened in the first half of the year, that growth strongly disappointed and it obviously had an impact on the fiscal out-turn, the fiscal out-turn we have seen up until August showed a much weaker revenue than anticipated at the same time as a relatively strong expenditure growth. So it is why we have revised, as you can see in the monitor, we have revised our forecast of the prime surplus this year to 1.3 percent of GDP.

QUESTIONER: For most of the sub-Saharan countries there is a sudden increased appetite for going on to the capital market, doing more eurobonds. Ghana recently did this as well. For you, do you think it is a good thing or bad thing for the increasing appetite for Ghana and other West African countries that are going onto the bond market, because in the case of Ghana, debt-to-GDP ratio is inching toward the 50 percent mark. Do you think it is good or we should take a second look at that?

Second, there are concerns about some of the prescriptions that the Bretton Woods Institutions are putting across on how to go about the fiscal consolidation. They think for instance that Ghana has argued that we need more time to work on it, while the World Bank and the IMF are pushing for a faster push. Do you think that we need to take our time with this prescription, because the one size fits all appears not to be working?

Mr. Gupta: First of all, the debt-to-GDP ratio in Ghana is 71 percent, not 60 percent so it is much higher than you mentioned¹. I think you raise the question whether countries should be borrowing abroad or not. I think it is a very good idea to be able to borrow the money and use it effectively for development and building infrastructure. What we have noticed, not necessarily in the case of Ghana but in many other countries, is that increases in that borrowing has not necessarily been accompanied by higher spending on infrastructure on the capital side, but has been accompanied by increase in spending on the current side. So, that has an impact on the ability to repay this debt. So, that is one of the aspects of borrowing from abroad. Essentially one of the points which the Fiscal Monitor makes is that there is a need to improve the fiscal governance related to external borrowing in a number of countries, which means there should be allocation of resources, there should be efficient use of resources that are borrowed, so that the countries are able to grow, which is the purpose of that borrowing and repay those funds.

So that is one of the aspects.

The second issue you raised was, should there be fast consolidation in the case of Ghana or not. Given the debt levels, and given that there is pressure that is coming up within the system itself, it would be a good idea to consolidate sooner than later and this would entail trying to restrain pressures on wages, containing the outlays on subsidies. Of course, while establishing appropriate targeted social safety nets. And also, improving the quality of spending that is taking place so that overall in the end there is an improvement in outcomes. I think that is how I would answer that question.

QUESTIONER: You have mentioned the political economy of bringing high debt down and if anything that should apply to Greece, I guess. At the same time the Fiscal Monitor is showing that Greece has lowered, has made one of the biggest adjustments of deficit among developed countries, if not the world. I'm wondering, what do you see as a way forward given the political constraints that you also seem to be taking into account in the Fiscal Monitor, both on the fiscal side, but also on the unemployment side, given that Greece has already approved some of the reforms on the labor market that you have indicated, and I guess they need time to work and how much time would that take?

Mr. Gaspar: Thank you very much for your question that allows me to explain why I spoke about the political economy of high debt. The progress that we document in the Fiscal Monitor in reducing the public debt-to-GDP ratio in advanced economies in general is steady, according to our baseline, but it is slow. On average, advanced economies would still be above 100 percent of GDP by the end of the decade. So, the high debt scenario is going to be with us for a relatively long time.

If you take a broader view about what public debt is, and take into account implicit liabilities associated with pension systems and contingent liabilities associated with various risks that are implicitly assumed by the general government balance sheet, you have numbers that can be characterized fairly as high debt.

Now, it does seem to us that looking at the political economy of this type of problem is essential to have viable strategies to solve them. And going forward, we see that as a very important topic, but it is something that we will be working on, not something where I can report that we have achieved results. That is something we are going to explore going forward.

Now, on Greece, as you know better than I, the public debt-to-GDP ratio in Greece is very high. Fortunately, the peak is behind us. And, as you said, and rightly so, the magnitude of the adjustment that was achieved in Greece is quite remarkable, and that applies not only to the structural adjustment in the budget deficit, also the achievement of a primary surplus and in general it is fair to say that fiscal adjustment is progressing in accordance with the program or even ahead of the program.

The same cannot be said on the important area of structural reform. And, clearly if you see the very high level of unemployment in Greece, which is above 25 percent, if you see the level of youth unemployment in Greece, that it is below 50 percent, you really see the link between fiscal and structural policies that is one of the topics explored in the Fiscal Monitor applies vividly. It is a crucial thing for Greece. So, while clearly Greece has made quite substantial progress in correcting its fiscal imbalances, in correcting its external imbalances, in returning to growth, in achieving limited and episodic access to financial markets, there have been a number of issuances of public debt in international markets, despite all of that progress, the job is not yet done. And going forward, this issue of structural policies and the interaction between structural and fiscal is going, I believe, to be at the top of the policy agenda.

Ms. Amr: I will take an online question.

Should fiscal policy play a role against slowdown and deflation risk in the eurozone? What is the fiscal space available per country? The 3 percent deficit limit?

This is from Portugal.

Mr. Gaspar: So, let's start with the last question, the 3 percent deficit limit. As I have already said in answering one of the first questions, the fiscal framework of the euro area, the fiscal framework of the European Union, is a very important anchor of credibility. Quite substantial efforts were done by countries to adjust their fiscal positions and they have been rewarded by this benign situation in bond markets. We cannot let that progress go to waste.

Why am I emphasizing this so much? Well, because the 3 percent deficit limit is a limit which is enshrined in the European Union treaty and therefore is one of the most visible reference points of the whole procedure. And so, the 3 percent deficit limit is something which is fundamental to be respected, as it is fundamental, that the rules of the European Union fiscal framework are respected by all countries bound by those rules.

Now, I turn to the first question, which is should fiscal policy respond to slowdown and deflation risks? Now, clearly we have a baseline that we have put forward in our economic forecasts. We have revised estimates. Growth in the euro area has been revised down. But, we expect the recovery to continue. We expect growth in 2015 to be significantly above what we forecast for 2014. So, the recovery is continuing.

So, on the baseline, our view is that monetary and fiscal, that is macroeconomic policies are broadly appropriate. And, it is a fundamental guideline for whoever has responsibilities associated with policy making, that one should not make blanket conditional statements. So, when one will have more information about specific developments, one will be able to take a specific view on what policy would be more appropriate.

It is not possible to give policy advice based on a blanket characterization of a possible situation in the future.

On fiscal space, there are many measures possible of fiscal space. But, the crucial one, to my mind, relates to credibility. A country has fiscal space when it can use actively fiscal policy without justifying questions about the sustainability of the fiscal position, or its ability to get financing from markets.

So the key question when one is thinking about the advisability of using fiscal policy in an expansionary way, is whether one can take fiscal sustainability as being assured, whether one can be confident that there will be no disturbances in bonds and bill markets. That is how I would approach fiscal space.

Ms. Amr: We'll take another question sent online from Portugal.

The report points out that the reduction in employer's social contribution may foster job creation. Do you think that eurozone stressed countries should apply such measures?

Mr. Gaspar: What we do see in the Fiscal Monitor is that indeed social contributions, in particular played by employers, have an effect on employment. We advise that in many cases it is a good idea to do it in a targeted way, when you have specific groups of the population where you want to promote employment. And, in the Fiscal Monitor we present the example of Sweden that I have already referred to, and the example of Germany, when it comes to the participation of older workers.

Clearly, one aspect that we very much emphasize in the Fiscal Monitor is that there is no such thing as a one size fits all. Structural reforms and the combination between structural reform and fiscal policy is very much country specific. It depends a lot on details. In order to know how to do it, you have to have a tremendous amount of concrete information about the country concerned. So one cannot possibly have a blanket statement and go with it. One would have to go case by case and in many cases, structural reforms in the labor market and the use of fiscal and quasi-fiscal instruments in the context of structural reforms were indeed considered in the context of programs for stressed economies in the euro area.

QUESTIONER: I just want to follow up on your comments about the 3 percent rule should be respected. I'm a little confused because when I read your report, you talk about countries should be given scope to have some fiscal flexibility to enact labor reforms, and that prescription would seem to apply to Europe in particular. Yet, you're saying the 3 percent rule should be respected. Can you elaborate on that a bit? When you wrote that, was that primarily directed at countries in the eurozone?

Mr. Gaspar: The prescription applies in general, that is if you think about a country anywhere in the world having to think through how best to use fiscal policy to support structural reform, when promoting jobs and growth, that country, that example country would have to think hard about how fiscal policy can help. And, in accordance with the Fiscal Monitor, the key considerations are, No. 1,whether the country has fiscal space in the sense that I used it. That is, whether the support from fiscal policy is compatible with the maintenance of fiscal sustainability and continued steady, smooth access to financial markets, bonds and bill markets.

Secondly, in order for fiscal policy to be safe in its supporting role, it is important that the economic costs and benefits can be quantified, and that the fiscal costs can be determined, can be limited in time and in size.

And last but not least, it is very important that the country be persuaded that the structural reform program will be carried out to the end. Right? So there is commitment to the process of structural reform. So, this applies in general.

Now you asked about Europe. In the case of Europe, the European rules can be used with a certain amount of flexibility. The 3 percent is not an absolute number. Many countries of the euro area have been above 3 percent, and in that case, they must correct their position. They must prove effective action that they're able to control that problem and that they can present a viable path to their medium-term objective, which has to be close to balance or in surplus.

Now, in the context of the European rules, the examination which is made by the European Commission takes into account a number of factors, and structural reform is actually explicitly referred in the rules in the context of the so-called preventive arm of the stability and growth pact. And that structural reform clause has been used in the past, but has been used in the past for examples of pension reform, right? Where you do have very significant and quite sizable upfront fiscal costs in the transition to a capitalization system. Correct?

Now, in the corrective arm, so when you are above 3 percent and found to have an excessive deficit, that clause is not explicit, but clearly if it has been used in this way in the preventive arm, it can be taken into account under the umbrella of the other factors, other relevant factors that can be taken into account. So our view is that there is a case to look seriously at fiscal space in Europe, and it is plausible that in some cases, it will be found that it is actually wise to allow fiscal policy to play a supporting role in structural reform.

So, I hope I answered your question, but I'm not completely sure.

QUESTIONER: In the WEO you outline downside risks to growth. We have at least an advanced country debt trajectory that is supposed to go down this year. If those downside risks materialize as you all outline, would we reverse course and see a rise in the debt trajectory? And secondly, given that, isn't it a little bit risky to be pushing for debt financed infrastructure investment given the debt fiasco that we're still trying to come out of?

Mr. Gaspar: On your first question concerning hypothetical risk scenarios, I cannot answer without having a well specified alternative scenario which I do not have. That is, our view is that on the baseline, we have a relatively weak recovery. We have a weaker recovery than what we were forecasting six months ago. But we do have a recovery. Clearly, if downside risks materialize, the scenario for the public-debt-to-GDP ratio will be less favorable. What size those risks would have depends exactly on what risks materialize. I would not like to speculate on alternative scenarios. On your second question, the point you make, points to Chapter 3 of the WEO where the various factors which are important to ensure that public investment is favorable both in terms of demand effects and supply effects, are carefully spelled out. So to give you just a tentative set of examples,ment the WEO makes it clear that it is important that monetary policy is accommodative and so that monetary policy is supposed to stay in an accommodative position for a prolonged period of time. That does make the fiscal multiplier larger and that is one of the reasons why the demand effects in the short to medium term are so favorable in the example of the WEO. Then, in order to have medium- to long-term favorable effects on potential output, one needs the public investment financed through this expansion to be efficient and productive. And, there is work done by the Fiscal Affairs Department that shows that the ability of countries to do so depends on the institutions on the budgetary procedures, the budgetary processes, the way investment projects are selected, the way maintenance is conducted, and much else.

So those conditions have to be in place. But, if we do have a scenario where you can expect demand effects to be sizable and the medium- to long-term impact to be positive, the point is that having a public investment initiative not only helps economic activity and jobs in the short run, it also delivers a lower public debt-to-GDP ratio and that is the direct answer to your questions. Under those assumptions is less by betting on public investment.

QUESTIONER: Can I clarify something? In previous WEO iterations you pretty much regularly have done downside scenarios in which you take your alternative scenario and do a debt projection scenario. Just to be clear, you haven't done that. And secondly, I understand you're saying you need to choose your infrastructure projects wisely, but the reason why historically they haven't proven to do as you say, optimistically say they should, is because they haven't been chosen wisely. So what I'm asking you, is that not a risk, that as historically proven there are infrastructure projects not chosen wisely?

Mr. Gaspar: Let's do this slowly, if I may. Concerning alternative scenarios in debt sustainability analysis exercises, those are done routinely, and we do have scenarios where we factor lower growth or growth shock, we factor lower inflation or inflation shock. We factor an interest rate shock so in the, we factor a number of other factors, and we have projections under alternative scenarios, so that is routine. The question is, if we have done something specific concerning risks that are relevant at this particular juncture for the global economy? In terms of this concrete situation that we're talking about here and now, the answer is no, we have not done that. But, we do it routinely and of course we will continue updating our exercise. So that it is routine work here at the International Monetary Fund.

The second point is one where we have done a lot of work in FAD, and Mr. Gupta has been one of the main contributors to that work. So, we have looked at countries around the world. We have looked at the efficiency of public investment projects. We have tried to determine in which conditions the public investment projects are most effective. We have seen a systematic relation between the quality of public infrastructure and the quality of institutions. But, the point I was making is that the illustrative scenario on the WEO is hypothetical and takes for granted that indeed the public investment is productive. And therefore, the result is positive in the short run because of the demand effects. And, it is also positive on the developments in the public debt-to-GDP ratio in the medium to long run because of the supply effects. This combination of demand and supply effects only takes place under conditions which are fully spelled out in the WEO. Let me see if Mr. Gupta, who is really the knowledgeable man on this, wants to add something.

Mr. Gupta: I think you answered the question.

QUESTIONER: In terms of fiscal risks in emerging markets, the report mentioned raising public contingent liabilities, and there was off-budget fiscal stimulus in many emerging market economies. Could you elaborate more about this issue? And, what is your advice for these economies to adjust their fiscal policy?

Mr. Gaspar: Thanks a lot for your question which is a very important question. What we show in the Fiscal Monitor is that if you look at past episodes in which countries had to manage crisis, the emergence of contingent liabilities materializing in the general government budget and in the public debt stock was quite significant. You do have examples of double-digit impact in terms of percentage to GDP. We're talking about big numbers. For us in the Fiscal Affairs Department of the IMF, this type of issue is really a priority, and we conduct and we are launching fiscal transparency valuations that are really meant to guarantee that countries produce and report the information we see necessary to have an assessment of these risks and are able to cope with them.

And we make a call to recognize the relevance of these risks everywhere and to make it standard to have procedures in order to control them. That fits very well with the general point of the Fiscal Monitor, which is that risks and vulnerabilities have accumulated, but it is incumbent on the authorities to be ready to control and manage them.

QUESTIONER: Just linked almost to this. In the Fiscal Monitor it takes into account only the budgetary deficit or the level of the public deficit. Or, it includes, for example, development, governmental banks, and the level of the debt of the public sector, not only the government. Because, sometimes we see, for example, countries on the budgeting deficit but not on the overall fiscal deficit. Could you please elaborate a little bit about that?

Mr. Gaspar: In the Fiscal Monitor the indicators that we systemically report on are conventional indicators that have the problems that you point to, but we analyze the importance of risks coming from the broader public sector, from contingent liabilities having to do with the financial sector and so on. In the context of the fiscal transparency evaluations we are conducting, we very much focus on that very issue. And for the exercises we have already performed, and some of our fiscal transparency evaluations are already published and in the public domain, you actually can see how these various factors have played out in some concrete examples that I believe you will find very enlightening.

Ms. Amr: Thank you very much. Thank you all for coming. Thanks to the panel.

Mr. Gaspar: If you allow me a last word, I would like to thank you for your questions and thank you very much for your interest on these topics that we find are very important.

Let me sum up, which I believe are the key messages:

First, I hope I persuade you that fiscal policy can do more for jobs, and it can do so when it works in tandem with broader structural reform efforts. And the Fiscal Monitor points to three ways in which fiscal policy can do it.

First, deficit reduction can be carefully designed to foster macroeconomic conditions that support employment and growth.

Second, fiscal policy can make space for structural labor market reform.

Third, fiscal policy can be part of the overall design of structural reform strategy, including through well-designed, targeted, labor tax cuts.

In general, it is clear that this is no time for complacency. Although immediate pressures on public finances have eased in the last six months, risks and vulnerabilities have continued to accumulate and those risks and vulnerabilities should be addressed. At this juncture, fiscal policy has to be smart, smart means fiscal policy that supports the economy and employment, while bringing public debt to safer levels. It also means a responsible fiscal policy that makes room for efficient public investment and structural reform in order to foster jobs and growth.

Thank you.

---

¹The level of public debt in Ghana is 71 percent of GDP. The number corresponds to the level projected at end-2015 under the baseline scenario published in the World Economic Outlook, which assumes the continuation of current economic policies (very gradual fiscal adjustment in 2015, a more depreciated exchange rate, and lower growth related to remaining high vulnerabilities). The latest actual figure available to IMF staff for end-2013 is equivalent to 56 percent of GDP.