Fiscal Monitor Update: Strengthening Fiscal Credibility (January 2011)

The first quarterly update of the Fiscal Monitor—published on January 27—assesses recent fiscal developments, which show a greater divergence across countries. Sovereign risks are elevated and have increased in some cases since the publication of the Fiscal Monitor in November. Market pressures remain intense in Europe. Moreover, the U.S. and Japan have adopted new fiscal stimulus measures, slowing the pace of fiscal consolidation in 2011. The underlying fiscal outlook has also weakened in some emerging markets. Heightened market scrutiny and delayed fiscal adjustment make it even more essential for governments to signal clear commitment to long-term sustainability through more robust and specific medium-term consolidation plans.

The Update complements the fall 2010 full issue of the Fiscal Monitor, which was presented in November to policymakers, market participants, academics, and the media in Beijing, Brussels, Kampala, London, and Tokyo. The fall 2010 Fiscal Monitor reviewed fiscal and debt market developments in advanced, emerging, and low-income countries with a special focus on the analysis of countries’ medium-term strategies. Special topics included the growth impact of various pension reforms; the fiscal implications of addressing the environmental impact of carbon-based fuels; and how revenues from value-added taxes can be increased.

Organized by FAD and the IMF Regional Office for Asia and the Pacific with support from the Japanese Ministry of Finance and attended by academics and officials from 19 Asian countries, this seminar focused on “Tax Policy and Tax Administration Challenges for Restoring Fiscal Sustainability.” The topics covered included fiscal challenges for Asia in the post-crisis world, taxation of the financial sector, tax policy and tax administration options for fiscal sustainability, and resource taxation. The seminar was opened by IMF Deputy Managing Director Mr. Shinohara.

FAD and the Overseas Development Institute (ODI) organized a high-level conference on “Accelerating the Transition Out of Fragility: the Role of Finance and Public Financial Management Reforms” (London, November 15–16, 2010). The conference was attended by ministers of finance, government officials, academics, and civil society organizations. The conference focused on the practical and policy aspects of financing fragile states and the associated implications for public financial management. The main conclusions and issues discussed in the conference were summarized in an IMF Survey Magazine article.

As advanced economies face major fiscal consolidation needs, a one-day conference organized by FAD analyzed past fiscal adjustment plans and their outcomes. Caroline Atkinson (Director, EXR) chaired a panel discussion comprising Alan Auerbach (UC Berkeley), Carlo Cottarelli (Director, FAD), Carmen Reinhart (Peterson Institute of International Economics), and Vito Tanzi (former Director, FAD). Participants presented case studies based on fiscal adjustment in G-7 countries and a broader cross-country analysis, identifying key factors underlying both failures and successes. The studies will be published as a book, “Chipping Away at Public Debt”(Wiley), in early 2011.

"Lifting Euro Area Growth: Priorities for Structural Reforms and Governance” by C. Allard and L. Everaert with A. Annett, A. Chopra, J. Escolano, D. Hardy, M. Mühleisen, and B. Yontcheva. The note argues that the euro area needs to make better use of its labor resources and lift productivity in Southern Europe. It proposes a series of product and labor market reforms as well as fiscal initiatives and strengthened governance structures.

E. Baldacci, S. Gupta, and C. Mulas-Granados discuss the appropriate fiscal policy mix in the aftermath of the “Great Recession” in their Finance & Development article Getting Debt Under Control—a topic they also analyze in their recent Working Paper “Restoring Debt Sustainability after Crises: Implications for the Fiscal Mix.”

In “A Status Update on Fiscal Exit Strategies” F. Bornhorst, N. Budina, G. Callegari, A.A. El-Ganainy, R. Gomez Sirera, A. Lemgruber, A. Schaechter, and J.B. Shin, review the medium-term fiscal consolidation plans of 25 countries.

In “A Historical Public Debt Database” A.M.A. Abbas, N. Belhocine, A.A. El-Ganainy, and M. Horton compile the first comprehensive historical public debt database (HPDD) covering gross government debt-to-GDP ratios for 174 countries, nearly the entire IMF country membership, and spanning a long time period. The database is publicly available on the Fiscal Monitor webpage.

"Revenue Administration: Developing a Taxpayer Compliance Program” by B. Russell discusses steps to improve taxpayer compliance through development, implementation, and periodic updating of a taxpayer compliance program.

IMF Launches Two Topical Trust Funds

The launch of two new topical trust funds—Managing Natural Resource Wealth (MNRW) and Tax Policy and Administration (TPA)—will help FAD meet a substantial and increasing demand for its capacity building activities. Their launch is a result of a partnership with a number of donors, including: Belgium, Germany, Luxembourg, the Netherlands, Norway, and Switzerland. The trust funds will support low and lower-middle-income member countries’ capacity building to derive maximum benefits from their natural resources and raise domestic revenues. Both trust funds are expected be operational by May 1, 2011.

During October–December 2010, FAD provided technical assistance to 37 IMF member countries and multicountry organizations.

The Fiscal Affairs Department (FAD) seeks talented and dedicated professionals with a background in different areas of public finance, to work on macro-fiscal policy issues and to provide technical assistance advice to IMF member countries on public financial management, tax policy reform, revenue administration, and different expenditure policy issues. Vacancies in FAD for staff and long-term expert positions are posted on http://www.imf.org/jobs. FAD also seeks experts who are interested in occasional short-term (2-3 week) assignments; interested candidates may send their CVs to FADexperts@imf.org.