Understanding Fiscal Space

IMF Policy Discussion Papers, March 1, 2005

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With new initiatives to provide low income countries with external assistance in support of the Millennium Development Goals (MDGs), donors and NGOs are seeking to understand whether "fiscal space" can be provided in the context of IMF-supported programs to support these initiatives.
The paper:
- defines the concept of fiscal space and its link to fiscal sustainability,
- describes alternative ways in which fiscal space can be created, and
- notes how the IMF can support appropriate efforts to create fiscal space.
The paper underscores that the issues that arise in creating fiscal space are not novel, but have always confronted governments in judging whether there is scope for additional expenditure.

Fiscal space is examined in relation to fiscal sustainability.
Alternative ways to create fiscal space are described (general category; specific methods not listed on the landing page).
The IMF's potential role in supporting efforts to create fiscal space is highlighted.
The paper emphasizes continuity with longstanding government budget trade-offs when assessing scope for additional expenditure.

Subject: Debt financing, Expenditure, External debt, Fiscal policy, Fiscal space, Fiscal sustainability, Infrastructure, National accounts
Keywords: Debt financing, Dutch Disease effect, expenditure policy decision, expenditure priority, expenditure program, expenditure structure, Fiscal space, fiscal sustainability, GDP, government expenditure program, Infrastructure, MDGs, PDP, poverty-reducing spending, reprioritizing expenditure, revenue, spending program, Tanzania

Understanding Fiscal Space -- Peter S. Heller -- IMF Discussion Paper 05/4 -- March 1, 2005
- Understanding Fiscal Space -- Peter S. Heller -- IMF Discussion Paper 05/4 -- March 1, 2005 (Markdown version)
- Understanding Fiscal Space -- Peter S. Heller -- IMF Discussion Paper 05/4 -- March 1, 2005 (PDF)