## Fiscal Space

_IMF Staff Position Notes, September 1, 2010_

## Source details

**Canonical URL:** [Fiscal Space](https://www.imf.org/en/publications/imf-staff-position-notes/issues/2016/12/31/fiscal-space-23726)

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## Bibliographic details
- Authors: Jonathan David Ostry, Atish R. Ghosh, Jun I Kim, Mahvash S Qureshi
- Published: September 1, 2010
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781455228010.004

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### Key hypothesis and framework
- When debt is in a moderate range, its dynamics are sustainable in the sense that increases in debt elicit sufficient increases in primary fiscal balances to stabilize the debt-to-GDP ratio.
- At high debt levels, the dynamics may turn unstable, and the debt ratio may not converge to a finite level.
- The framework allows estimation of a “debt limit” consistent with a country’s historical track record of adjustment: without an extraordinary fiscal effort, any debt increment beyond this limit would cause debt to increase without bound.

### Definition of debt limit and fiscal space
- Debt limit: the critical point above which a country’s normal fiscal response to rising debt becomes insufficient to maintain debt sustainability.
- Fiscal space: given a country’s normal pattern of adjustment, the difference between its debt limit and its current level of debt.
- The debt limit is not an absolute or immutable barrier and is distinct from any notion of the optimal level of public debt.

### Implications and cautions
- The debt limit delineates the point at which fiscal solvency is called into question.
- The analysis abstracts entirely from liquidity/rollover risk; therefore, prudence dictates that countries will typically want to be well below their debt limit.
- Interpretation: being below the debt limit does not imply absence of risk—countries should consider additional factors beyond the historical adjustment pattern.

### Authors and publication specifics
- By Jonathan David Ostry, Atish R. Ghosh, Jun I Kim, Mahvash S Qureshi
- September 1, 2010
- IMF Staff Position Notes
- Pages: 25
- Volume: 2010
- Issue: 011
- Series: Staff Position Note No. 2010/011
- DOI: https://doi.org/10.5089/9781455228010.004
- ISBN: 9781455228010
- ISSN: 2617-6742

*Source: Fiscal Space, IMF Staff Position Notes.*

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## Content in this bundle

- **spn1011 — Executive Summary**
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  - [spn1011 — Executive Summary (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/spn/2010/_spn1011.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/imf-staff-position-notes/issues/2016/12/31/fiscal-space-23726_