## Upgrading Fiscal Frameworks in Asia-Pacific

_Departmental Papers, September 16, 2024_

## Source details

**Canonical URL:** [Upgrading Fiscal Frameworks in Asia-Pacific](https://www.imf.org/en/publications/departmental-papers-policy-papers/issues/2024/09/13/upgrading-fiscal-frameworks-in-asia-pacific-552523)

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## Bibliographic details
- Authors: Enrique Flores, Pranav Gupta, Miss Yinqiu Lu, Paulo A Medas, Dinar Prihardini, Hoda Selim, Weining Xin, Masafumi Yabara
- Published: September 16, 2024
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9798400284915.087

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### Overview
- Objective: Guide the reform of fiscal frameworks in Asia-Pacific amid calls for a more active fiscal policy in a shock-prone world.
- Context: Cost of fiscal support is large; fiscal frameworks and fiscal rules are being tested by a sharp increase in debt, high interest, and weaker growth prospects.
- Long-term stressors highlighted: aging populations, climate change, and the need to deliver on the sustainable development goals.

### Key findings
- Countercyclicality and responses to shocks:
  - After the global financial crisis, fiscal policy in Asia-Pacific became more countercyclical and stronger than in other regions—especially in advanced economies.
  - The degree of countercyclicality has been asymmetric, with larger responses during periods of weak growth and in response to large shocks—the global financial crisis and the pandemic.
  - Responses to the pandemic were large and used a wide range of tools; fiscal and monetary policy complemented each other in response to large shocks.
- Debt dynamics:
  - Public debt has been rising persistently across most countries in Asia-Pacific.
  - Drivers identified: declining growth and rising deficits—particularly after the global financial crisis for advanced economies and after the pandemic for emerging market and low income countries.
- Fiscal frameworks and performance:
  - Fiscal rules: usually focus on debt and budget balances and are set by law but tend to lack well-specified enforcement mechanisms or escape clauses.
  - Compliance with rules has worsened following the pandemic; Asia-Pacific countries show larger deviations relative to other regions compared with outturns before the pandemic.
  - Medium-term fiscal frameworks (MTFFs): adoption has increased, but forward guidance has been hampered by the lack of binding targets and ex-post analysis.
  - MTFFs do not seem to have produced better macro-fiscal forecasts, partly due to weak capacity and enforcement, lack of integration with the annual budget, and exposure to shocks—with risk analysis mostly limited to qualitative discussions.

### Proposed reforms and recommendations
- Adopt a comprehensive, risk-based approach to public finances.
- Strengthen medium-term orientation of fiscal policy by:
  - Implementing credible medium-term fiscal plans.
  - Linking fiscal rules to the medium-term strategy and the annual budgets.
  - Increasing reliance on fiscal councils.
- Broaden the view of the public sector:
  - Recognize that fiscal policy is conducted through multiple channels; assess and manage vulnerabilities across those channels.
  - Significantly improve fiscal statistics.
- Address aging and climate change by:
  - Assessing large intergenerational trade-offs.
  - Reporting on long-term debt dynamics.
  - Developing green medium-term fiscal frameworks that incorporate the effects of climate change and climate policies.

### Publication and metadata (as stated)
- Authors: Enrique Flores, Pranav Gupta, Yinqiu Lu, Paulo A Medas, Dinar Prihardini, Hoda Selim, Weining Xin, Masafumi Yabara
- Date: September 16, 2024
- Pages: 62
- Volume: 2024
- Issue: 008
- Series: Departmental Paper No 2024/008
- DOI: https://doi.org/10.5089/9798400284915.087
- Stock No: DPEA2024UFFAP
- ISBN: 9798400284915
- ISSN: 2616-5333
- Subject tags (as provided): Expenditure, Financial crises, Fiscal governance, Fiscal policy, Fiscal rules, Global financial crisis of 2008-2009, Public debt
- Keywords (as provided): automatic stabilizers, Climate Change, Fiscal Frameworks, Fiscal Rules, Medium-term Fiscal Frameworks, Population Aging, Public Debt

*Upgrading Fiscal Frameworks in Asia-Pacific, Departmental Papers 2024, 008 (2024), Enrique Flores et al., published September 16, 2024.*

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_Source: https://www.imf.org/en/publications/departmental-papers-policy-papers/issues/2024/09/13/upgrading-fiscal-frameworks-in-asia-pacific-552523_