Paraguay: Technical Assistance Report-Establishing a Structural Balance Rule and a Public Debt Objective
IMF Staff Country Reports, March 15, 2017
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Bibliographic details
- Published: March 15, 2017
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781475586268.002
Overview
- This Technical Assistance Report discusses measures to establish a structural balance rule and a public debt objective in Paraguay.
- The analysis recommends a more conservative approach to the authorities’ structural balance formula and proposes assumptions and safeguards to limit unwarranted expenditure growth.
Key analytical findings
- The authorities’ structural balance formula should be more conservative.
- To mitigate the risk of unwarranted expenditure growth, the formula should assume that future structural revenues will grow at the same pace as trend GDP.
- Under the assumption that structural revenues grow at the same pace as trend GDP, the structural balance rule becomes broadly equivalent to an expenditure rule, constraining spending to grow at trend GDP.
- An expenditure-rule equivalent is simpler to implement and easier to communicate to the public.
- New revenue measures should be accounted for more explicitly in the formula, provided there are safeguards to ensure that they are estimated fairly.
Policy recommendations
- Adopt a structural balance formula that is more conservative than the current approach.
- Base the formula’s revenue-growth assumption on structural revenues growing at the same pace as trend GDP to avoid implicit expenditure drift.
- Treat the implied structural balance as an expenditure rule constraint, thereby limiting nominal spending growth to trend GDP.
- Incorporate explicit treatment of new revenue measures into the rule’s operational design, with safeguards to ensure fair and transparent estimation.
Implementation considerations
- Simplicity and communicability are key: an expenditure-rule interpretation of the structural balance rule facilitates public understanding and administrative implementation.
- Safeguards for new revenue measures are necessary to prevent overestimation of fiscal space and unwarranted spending increases.
Subjects and keywords
- Asset and liability management
- Debt limits
- Expenditure
- Fiscal policy
- Fiscal stance
- Public debt
- Public investment and public-private partnerships (PPP)
- Keywords: CR, debt anchor, debt limit, Debt limits, Europe, expenditure rule, Fiscal stance, Global, ISCR, Public investment and public-private partnerships (PPP), SBR formula, structural revenue, trend GDP, West Africa, Western Europe
Paraguay: Technical Assistance Report-Establishing a Structural Balance Rule and a Public Debt Objective, March 15, 2017 (IMF Staff Country Reports).
Content in this bundle
- Country Report