IMF Fiscal Monitor: Navigating the Fiscal Challenges Ahead
Posted by Michel Lazare
Today, the IMF's Fiscal Affairs Department published the third issue of the "Fiscal Monitor" -- a twice yearly publication launched in July 2009.
The Fiscal Monitor's goal is to provide enhanced coverage of critical fiscal issues from a global and cross-country perspective. It is aimed at government and central bank policymakers, opinion leaders in business and economics journalism, researchers, and financial sector analysts and decision makers.
The format of this current issue has been changed to provide a more comprehensive analysis of fiscal developments and policies in advanced, emerging, and low-income economies. From now on, the Fiscal Monitor will be part of the IMF's series of World Economic and Financial Surveys, along with the World Economic Outlook and the Global Financial Stability Report. This change signals the importance that the Fund gives to timely, comprehensive, and high-quality cross-country analysis of fiscal trends and issues.
The key points made in the May 2010 Fiscal Monitor are the following:
- In many countries, fiscal adjustment will require a sizable, and sometimes unprecedented, effort. The Monitor presents a broad outline of policies to achieve this adjustment. While the economic recovery is proceeding faster than expected, fiscal balances are not improving commensurately.
- Excluding financial sector support, headline and cyclically adjusted fiscal balances are expected to worsen further in advanced economies this year, contributing to a sustained rise in public debt. By contrast, deficits remain markedly lower in emerging economies. Here too, however, progress in reducing deficits has been slower than expected.
- As economic and financial conditions normalize, support to financial sectors is being unwound and asset recovery has begun.
- Risk of spillovers of sovereign risk across advanced countries is significant, at a time when advanced countries will need to tap bond markets in unprecedented amounts.
- New research on government debt and growth indicates that high public debt may hamper growth, mainly through its impact on domestic investment and productivity.
- Fiscal strategies should aim at gradually but steadily and significantly—reducing public debt ratios, rather than just stabilizing them at their elevated post crisis levels. Failing to do so would ultimately weaken the world’s long-term growth prospects.