Fiscal policy is beginning a gradual shift from supporting demand to reducing
deficits, but at different speeds. In addition to its regular analysis of
fiscal developments and trends, the Fiscal Monitor, to
be published on November 4, will have a special focus on countries'
medium-term strategies to put their public finances on a sounder footing.
Other topics include 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.
Historical Public Debt Database (HPDD): This FAD database
covering nearly the entire Fund membership and an exceptionally long time
period will be publicly available through the Fund's
website on November 4, together with an accompanying working paper (S. A.
Abbas, N. Belhocine, A. El-Ganainy, and M. Horton: "Historical Public
Debt Database", forthcoming).
Taxing the Financial Sector: A Report to the G-20 Leaders and
Conference in Paris
One controversial issue addressed by the IMF over the
past months has been the "fair and substantial contribution" of
the financial sector to meet the costs of the crisis. Working with the
Monetary and Capital Markets and Research Departments, FAD prepared a
report for the G-20 Leaders (the
final report), which attracted wide media and public interest.
The report and other European proposals were discussed at a
high-level conference on financial sector taxation held in Paris on
September 16. It was attended by senior officials from 35 European central
banks and ministries of finance. IMF Deputy Managing Director, Mr.
Portugal opened the conference.
Fiscal Policies: Effective Strategies for Stability and Growth
During the IMF's 2010 Annual Meetings, FAD organized
discussion on the fiscal challenges ahead as the world economy exits
the crisis. The panelists were Prof. A. Alesina (Harvard University), Mr.
C. Cottarelli (FAD Director), Mr. P. J. Gordhan (Minister of Finance, South
Africa), Prof. S. Johnson (MIT), Mr. J. Ligi (Minister of Finance,
Estonia), and Mr. P. Solbes (former Minister of Finance, Spain). Ms. Z.
Minton-Beddoes (Economic Editor of The Economist) moderated. The discussion
focused on the need for fiscal adjustment and credible medium-term plans to
reduce debt ratios, the impact of fiscal consolidation on short-term
economic growth, the implications of fiscal policy actions of advanced
economies on emerging markets, and the need to foster a coordinated policy
response at the G-20 level.
Managing Natural Resource Wealth
FAD, the IMF Strategy, Policy, and Review
Department, and the Natural
Resource Charter organized a seminar during the IMF's 2010 Annual
Meetings on "How
Societies Can Best Manage Wealth from Natural Resources." The
panel discussion included Timor-Leste Minister of Finance Emilia Pires;
Andres Velasco, former finance minister of Chile; and Guillermo Ortiz,
former central bank governor of Mexico as moderator. World Bank Iraq Senior
Advisor, Yahia Said and FAD Assistant Director, Michael Keen also joined
In The News
The Financial Times (August
11, 2010) published an op-ed by Olivier Blanchard and Carlo Cottarelli
with the title "The
great false choice, stimulus or austerity." In
this piece, the authors discuss the issues involved in restoring fiscal
sustainability while maintaining support for the recovery.
The contrarian views held in the Staff Position Note "Default
in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely"
(see comment in this newsletter) sparked attention in the media. See, for
example The Wall Street Journal ( "IMF
Warns Countries of Debt Risks, Dismisses Idea of Greek Default"
by Bob Davis, September 2). Bloomberg radio (Bloomberg surveillance,
September 2) featured an interview with Carlo Cottarelli on this topic.
The evidence and recommendations in the note "Long-Term
Trends in Public Finances in the G-7 Economies"
(see comment in this newsletter) was also extensively covered, including
by the Financial Times ("Richer
or poorer: Taxing times for debt-laden advanced economies"
by Chris Giles, October 7), and The New York Times ("Monetary
Fund Warns G-7 on Debt Levels" by Sewell Chan,
Recent Staff Position Notes
Trends in Public Finances in the G-7 Economies", by C. Cottarelli
and A. Schaechter reviews the generalized rise of public debt levels in the
G-7 economies in the decades since the 1970s, when debt became the ultimate
shock absorber: rising in bad times and not coming down in good times. It
discusses the unsustainability of these trends going forward and offers policy
options to address this problem.
in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely,"
by C. Cottarelli, L. Forni, J. Gottschalk, and P. Mauro examines the
likelihood that worsening public finances lead to a debt default in certain
advanced countries. It argues that debt defaults in preceding decades have
been triggered primarily by spiraling debt service costs, while the current
challenges in some European advanced economies stem from large primary
deficits. The paper concludes that default would make little sense for
these countries: the problem is not the debt servicing burden, but the
Deficits, Public Debt, and Sovereign Bond Yields," E. Baldacci and
M. S. Kumar explore the impact that fiscal deficits and government debt had
on long-term sovereign bond yields during the last 30 years in 31 advanced
and emerging market economies. It finds that increases of one percentage
point of GDP in deficit and government debt lead to an increase in real
interest rates of around 20 bps and 5 bps, respectively.
Debt Sustainability after Crises: Implications for the Fiscal Mix,"
E. Baldacci, S. Gupta, and C. Mulas-Granados analyze the experience of 99
advanced and developing economies in restoring fiscal sustainability after
crises. They confirm earlier findings on the key importance of current
expenditure cuts, but they also find that revenue-raising measures play an
important role in large fiscal consolidations.
Technical Notes and Manuals
Government Employment and Compensation" by B. Clements, S. Gupta,
I. Karpowicz, and S. Tareq discusses criteria for evaluating government
employment and compensation, and options for reducing government's wage
Care Spending Issues in Advanced Economies" by E. Jenkner and A.
Leive. Both public and total health spending have increased substantially
in the past decades—a trend expected to continue, driven by ageing,
rising incomes, and technological change. The note offers guidance for
analyzing the evolution of public health expenditure and evaluating policy
options in advanced and emerging market economies.
Administration: Performance Measurement in Tax Administration" by
W. Crandall explains performance management and its measurement, how tax
administrations apply it, key tasks in implementing a performance
management system, and country experiences.
Administration: Managing the Shadow Economy" by B. Russell
discusses the shadow economy and its measurement, as well as actions which
revenue agencies can take to manage it.
Cash Management: Its Interaction with Other Financial Policies" by
M. Williams offers guidance on policy, institutional and practical issues
for governments looking to develop a cash management function. It discusses
the implications of active cash management for other functions such as debt
management, monetary policy, and financial market development.
Technical Assistance Activities
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.