The State of Public Finances: A Cross-Country Fiscal Monitor
IMF Staff Position Notes, July 30, 2009
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- The State of Public Finances: A Cross-Country Fiscal Monitor
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Bibliographic details
- Authors: Paolo Mauro, Mark A Horton, Manmohan S. Kumar
- Published: July 30, 2009
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781455257270.004
Summary findings
- Sharp increase in government debt has complicated the management of preexisting challenges from population aging, especially in advanced economies.
- The increase in debt ratios projected for these economies is the largest since World War II.
- Regardless of the timing of adjustment, its necessary scale will be quite large, particularly for high-debt advanced economies.
- Preserving investor confidence in government solvency is key to avoiding an increase in interest rates, thereby preventing snowballing debt dynamics and ensuring that fiscal stimulus is effective.
Risks and tradeoffs identified
- Policymakers face two competing risks:
- A too hasty withdrawal of fiscal stimulus would risk nipping a recovery in the bud.
- A delayed withdrawal could increase investor concerns about sustainability, leading to higher interest rates on government paper, undermining the recovery and increasing risks of a snowballing of debt.
- The increase in deficits and debt raises complicated tradeoffs between supporting recovery and maintaining solvency.
Policy implications and recommendations
- Balance the timing of fiscal withdrawal carefully to avoid prematurely halting recovery while preserving investor confidence.
- Undertake sufficiently large fiscal adjustment, especially in high-debt advanced economies, to address long-term sustainability concerns.
- Focus on measures that maintain or restore investor confidence to keep interest rates low and fiscal stimulus effective.
Subjects and keywords
- Subject: Emerging and frontier financial markets, Expenditure, Financial markets, Fiscal policy, Fiscal stance, Fiscal stimulus, Public debt
- Keywords: Africa, ameliorating spending dynamics, country, country authorities, country circumstances, Emerging and frontier financial markets, emerging G-20 country, Europe, financial support, Fiscal stance, Fiscal stimulus, fund G-20 desk, G20 industrial nations, GDP, GDP ratio, Global, government financing, interest rate, market G-20 country, PPP GDP-weighted average, SPN, stimulus spending