Press Release No. 09/273

Press Release No. 09/273
July 30, 2009

The International Monetary Fund (IMF) today launched The State of Public Finances: A Cross-Country Fiscal Monitor, a new regular online publication looking at the state of public finances around the world. The debut issue of the Monitor reviews the impact of the global financial crisis, policy responses, including measures taken to support financial and other sectors, the effects of fiscal policy on the real economy, the evolution of market indicators of fiscal risk, and actions of national authorities to achieve fiscal solvency in the medium term.

Budget deficits and public debt are rising sharply in many countries, and while fiscal policy should continue to support activity until recovery has taken hold, clear strategies are needed to consolidate fiscal balances in the medium term as conditions improve and ensure that solvency is preserved. “The financial crisis is having a dramatic effect on fiscal positions throughout the world,” said Carlo Cottarelli, Director of the Fiscal Affairs Department. “Cross-country perspectives and analysis like that contained in the Monitor are critical to help our members respond to the crisis and the fiscal challenges that will follow it.” The Monitor will appear each April and October, shortly after publication of the World Economic Outlook, with shorter quarterly updates in between as warranted by circumstances.

The first edition of the Monitor notes that fiscal deficits of G-20 countries are projected to rise by an average of 5.5 percentage points of gross domestic product (GDP) in 2009 and 2010 compared to pre-crisis levels in 2007. Although fiscal balances are expected to improve over the next few years as the global economy recovers, the outlook for the public debt in many countries is more worrying. Advanced G-20 countries’ debt ratios are projected to widen by about 40 percentage points of GDP by 2014, an increase not seen since the Second World War.

The Monitor urges countries to elaborate policies to address rising debt positions in the medium term, while tailoring their approach to their own circumstances and initial debt positions, which vary widely among them. In some economies, the required fiscal adjustment is made more demanding by pressures in the areas of pensions and health care. For these countries, successful adjustment will hinge on measures to contain entitlement spending, including expenditure resulting from population aging and for health care more generally. The Monitor reviews elements of a successful strategy to ensure solvency, highlighting institutional features that are likely to play an important role.

“The increase in deficits and debt raises complicated tradeoffs. Policymakers will need to balance two competing risks: on the one hand, a too hasty withdrawal of fiscal stimulus would risk nipping the recovery in the bud; on the other hand, with a delayed withdrawal investor concerns about sustainability may increase, leading to higher interest rates on government paper, undermining the recovery and increasing risks of a snowballing of debt,” it adds. At this stage, however, withdrawal of stimulus would be premature.

Useful links:

The State of Public Finances: A Cross-Country Fiscal Monitor
(http://www.imf.org/external/pubs/ft/spn/2009/spn0921.pdf)

The State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisis
(http://www.imf.org/external/np/pp/eng/2009/030609.pdf)

World Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2009/01/index.htm)

IMF Survey Online: G-20 Reaffirms IMF's Central Role in Combating Crisis
(http://www.imf.org/external/pubs/ft/survey/so/2009/NEW040309A.htm)