IMF Paper Lays Out Framework to Assess Fiscal Space

IMF News, December 15, 2016

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The International Monetary Fund published a paper that lays out a framework for Fund staff to assess fiscal space.
The framework puts forward a set of tools to assess available fiscal space in a way that is broadly comparable across countries.
The framework provides IMF staff and policymakers with a consistent approach to assessing available space as an input to inform decisions about fiscal policy.
The framework leverages existing tools for fiscal sustainability developed by staff, organizing them into a systematic and consistent set of considerations.
The framework allows Fund staff to qualitatively assess the degree of fiscal space in a consistent manner across all member countries.

Fiscal space is defined as the ability of a government to raise spending or lower taxes without endangering market access and debt sustainability.
Making a determination about fiscal space requires a comprehensive and multi-dimensional approach.
The framework builds on fiscal sustainability tools and integrates multiple dimensions to assess risks to market access and debt sustainability.

The use of fiscal space as a means to bolster demand and support long-term growth is central to IMF global policy advice in the context of the “new mediocre” affecting global economic recovery.
The framework can be applied to assess the scope for fiscal support in individual countries, taking into account their macroeconomic situation and prevailing global policy challenges.
Considerations include diminished gains from additional monetary policy support and the need to finance structural reform priorities.

The framework was discussed by the IMF’s Executive Board earlier in the year of publication.
Initial application: the framework will be applied in Article IV consultations of about 40 major economies.
The framework will be updated over time based on further experience, research, and feedback.
Expected evolution: adjustments in response to experience gained through implementation in bilateral surveillance and to new metrics and approaches to fiscal sustainability developed by Fund staff.