Posted by Carlo Cottarelli and previously published on iMFdirect
We’ve just updated our latest assessment of the state of government finances, debts, and deficits in advanced and emerging economies.
Fiscal adjustment is continuing in the advanced economies at a speed that is broadly appropriate, and roughly what we projected three months ago. In emerging economies there’s a pause in fiscal adjustment this year and next, but this too is generally appropriate, given that many of these countries have low debt and deficits.
The improvement in fiscal conditions in many advanced economies is welcome, but it’s going to take more than lower deficits to get countries under market pressure out of the crosshairs.
Signs of Progress
There are clear signs of fiscal progress in advanced economies. The deficit will decline in about three quarters of advanced economies this year, and in almost 90 percent of them next year. Debt ratios are also starting to come down: we project one-third of advanced economies to have a declining debt ratio this year and half of them to do so next year.
The progress in deficit-cutting in Europe means less fiscal tightening will be needed in the future, reducing the fiscal drag on growth: in 2011–12 the fiscal tightening in the euro area will amount to a cumulative 2½ percentage points of GDP, while in 2013–14 it is projected to be one third of this, which is good news for growth.