Fiscal Monitor, September 2011: Addressing Fiscal Challenges to Reduce Economic Risks
Fiscal Monitor, September 23, 2011
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- Fiscal Monitor, September 2011: Addressing Fiscal Challenges to Reduce Economic Risks
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Bibliographic details
- Published: September 23, 2011
- Series: Fiscal Monitor
- DOI: https://doi.org/10.5089/9781616352103.089
Summary
- Despite progress in addressing key fiscal weaknesses in many countries, significant policy challenges remain in advanced, emerging, and low-income economies, and must be faced in an environment where downside risks to growth have increased.
- Many advanced economies face very large adjustment needs to reduce risks related to high debt ratios.
- The appropriate pace of adjustment in the short run will depend, for each country, on:
- the intensity of the market pressure it confronts,
- the magnitude of the risks to growth it faces,
- and the credibility of its medium-term program.
- The euro area needs to sustain fiscal consolidation, minimize its growth fallout, and address concerns about the adequacy of crisis resolution mechanisms.
- In Japan and the United States, sufficiently detailed and ambitious plans to reduce deficits and debts are needed to prevent credibility from weakening.
- Many emerging economies need to make faster progress in strengthening fiscal fundamentals before cyclical factors or spillovers from advanced economies turn against them.
- Low-income countries also need to rebuild fiscal buffers, while addressing spending needs.
Major findings and analysis
- Advanced economies:
- Face very large adjustment needs to reduce risks related to high debt ratios.
- Short-run adjustment pace should be country-specific based on market pressure, growth risk magnitude, and program credibility.
- Euro area:
- Requires sustained fiscal consolidation.
- Must minimize growth fallout from consolidation.
- Needs to address concerns about the adequacy of crisis resolution mechanisms.
- Japan and the United States:
- Need sufficiently detailed and ambitious plans to reduce deficits and debts to avoid weakening credibility.
- Emerging economies:
- Need to make faster progress strengthening fiscal fundamentals to insulate against adverse cyclical shifts or spillovers from advanced economies.
- Low-income countries:
- Need to rebuild fiscal buffers while continuing to address essential spending needs.
Policy recommendations
- For all countries, tailor the short-run pace of fiscal adjustment to:
- intensity of market pressure,
- magnitude of growth risks,
- and credibility of medium-term fiscal programs.
- For the euro area:
- Sustain fiscal consolidation.
- Take steps to limit negative growth spillovers.
- Improve crisis resolution mechanisms to restore confidence.
- For Japan and the United States:
- Develop and commit to sufficiently detailed and ambitious deficit- and debt-reduction plans to preserve credibility.
- For emerging and low-income economies:
- Accelerate efforts to strengthen fiscal fundamentals.
- Rebuild or maintain fiscal buffers while addressing priority spending needs.
Content in this bundle
- Fiscal Monitor - Addressing Fiscal Challenges to Reduce Economic Risks; September 2011
References
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