Economic Growth

April 09, 2012

Going Broke? Why Pension Reforms Are Needed in Emerging Economies?

Previously published in iMFdirect (The International Monetary Fund's global economy forum), by Mauricio Soto

We’re all getting older, and there’s no doubt that pension reform is a hot topic in the advanced economies. But it’s also critical in emerging economies.

Our analysis here at the IMF shows that across emerging economies pension spending is projected to rise as the population ages. On average, these spending increases are not that large. But reforms are needed to increase coverage of the system without making pension systems financially unsustainable over the long term.

 

Continue reading "Going Broke? Why Pension Reforms Are Needed in Emerging Economies?" »

August 29, 2011

IMF Technical Assistance: Positive Impact on the Ground

Posted by Camille Karamaga

Country leadership has been essential to the past and on-going success in implementing public financial management reforms in Liberia. But the IMF technical assistance seems to have played an important role, as acknowledged by the Liberian authorities in a video featured on the IMF external web.

Well coordinated assistance has been, and continues to be, provided by the IMF Fiscal Affairs department (FAD) and other development partners. FAD’s assistance, which is currently funded by the Swedish Development Agency (Sida) and the EU, relies on a resident advisor who provides intensive on-the-job capacity building and day-to-day guidance to support the ownership and sustainability of the reforms, in addition to regional activities funded by the Japanese government and routine visit from headquarters staff.

One of the lynchpins of the ongoing economic governance reforms has been the passage in 2009 of a new public financial management law, which along with its associated financial regulations, has re-established the legal basis for public financial transactions in Liberia, as portrayed in a recent blog post. As Minister Augustine Ngafuan stresses in the video, since 2007 FAD has assisted the authorities in designing and putting in place a modern legislative framework that will help Liberia manage its public finances for years to come.

Continue reading "IMF Technical Assistance: Positive Impact on the Ground" »

January 28, 2011

IMF's Fiscal Monitor Update: Strengthening Fiscal Credibility

Fmupcov 

 On January 27, 2011, the IMF released an update to its flagship publication on fiscal issues: The Fiscal Monitor. We are posting here the beginning of the text of this update titled "Strengthening Fiscal Credibility". We provide at the end of this post, a pdf copy of the full text (and corresponding data tables), as well as a link to the relevant IMF web page.

 

Despite the improving global outlook, the pace of fiscal consolidation this year is slowing in some key countries. The United States and Japan are adopting new stimulus measures and delaying consolidation relative to the pace envisaged in the November 2010 Fiscal Monitor. The underlying fiscal outlook has also weakened in some emerging markets—among them are several that need to build larger fiscal buffers, particularly in the face of surging capital inflows, overheating, and possible contagion from advanced countries. By contrast, advanced economies in Europe are projected to continue tightening policies amid heightened market scrutiny in several countries. Altogether, sovereign risks remain elevated and in some cases have increased since November, underlining the need for more robust and specific medium-term consolidation plans.

Fiscal outturns in 2010 were slightly better than projected, but some large emerging economies underperformed

 
While advanced economies maintained expansionary fiscal policies on average in 2010, outturns were generally slightly better than projected in the November 2010 Fiscal Monitor. Revenue collection exceeded expectations across most major economies—both output growth and, in some countries, the responsiveness of revenues to output were larger than expected—and spending was lower (Table 1). Overall, the average deficit of advanced economies fell compared with 2009 by about 1 percentage point, to about 8 percent of GDP (0.3 percent better than projected). Excluding the impact of growth and financial sector support, the cyclically adjusted balance widened slightly. Deficits in Germany and the United States were lower than in the November Monitor, reflecting good revenue performance and lower spending—due in Germany to the strong labor market and in the United States to some legislative delays in approving spending and lower financial sector support. Euro-area countries that had targeted large fiscal consolidations generally succeeded in posting marked deficit reductions. Meanwhile, advanced economy gross general government debt continued to rise rapidly in 2010, topping 96 percent of GDP.

Continue reading "IMF's Fiscal Monitor Update: Strengthening Fiscal Credibility" »

December 17, 2010

Fiscal Stimulus, Aussie style

Posted by Jason Harris[1]

The Australian economy escaped from the global financial crisis relatively unscathed. Growth continued almost unabated, the unemployment rate topped out at only 5.8 per cent, and there was no significant loss of productive capacity. In fact, even while the crisis continues, Australia’s major economic challenges centre around managing an economy at full-employment with emerging inflationary pressures and dealing with the structural changes associated with a resurgent terms of trade, issues that many other economies would look upon with envy.

One of the key factors behind this is the aggressiveness of the fiscal stimulus adopted in response to the crisis. This post will focus on the make-up and design of the fiscal stimulus, which was very much in alignment with the IMF’s adage of timely, targeted, and temporary. Going into the crisis, Australia could have been considered a prime candidate for collateral damage.  With a large current account deficit, and heavy reliance on global capital markets for wholesale bank financing, Australia was exposed to the freezing of financial markets. Further, as the crisis developed, there was a sharp slowdown amongst Australia’s major trading partners, and a large decline in the hitherto booming terms of trade.  But Australia avoided the sharp contractions experienced by most other advanced economies.  With the exception of one quarter of slightly negative growth, GDP continued to grow throughout 2008 and 2009.

Continue reading "Fiscal Stimulus, Aussie style" »

October 29, 2010

IMF Fiscal Affairs Department's Newsletter (October 2010)

Fiscal Affairs : October 2010

 

IMF Survey Magazine eNews

October 2010

Fiscal Affairs Department (FAD) of the International Monetary Fund

  Publication Updates

   IMF Publications

·         Financial Sector Taxation: The IMF's Report to the G-20 and Background Material

   more...

  IMF Working Papers

·         Fiscal Deficits, Public Debt, and Sovereign Bond Yields

·         Restoring Debt Sustainability after Crises: Implications for the Fiscal Mix

·         Public Capital and Growth

·         The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries

   more...

  IMF Staff Position Notes

·         Long-Term Trends in Public Finances in the G-7 Economies

·         Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely

   more...

  External Publications

·         Effect of Development Assistance on Domestic Health Expenditures

·         Sovereign Risk: Are the EU's New Member States Different

·         International Experience with Fiscal Rules

·         The Macroeconomics of Fiscal Consolidation in Area Euro Countries

·         Macroeconomic Effects of Greater Competition in the Service Sector

   more...

  Technical Notes
  and Manuals

·         Evaluating Government Employment and Compensation

·         Health Care Spending Issues in Advanced Economies

·         Performance Measurement in Tax Administration

·         Managing the Shadow Economy

·         Autonomy in Tax Administration and the Revenue Authority Model

·         Government Cash Management: Its Interaction with Other Financial Policies

   more...

 

Taxing the Financial Sector: A Report to the G-20 Leaders and Conference in Paris

Taxing the Financial SectorOne 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

Fiscal Policies Panelists at 2010 Annual MeetingsDuring the IMF's 2010 Annual Meetings, FAD organized a panel 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 the discussion.

FAD 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, October 7).

Recent Staff Position Notes

Long Term Trends in Public Finances in the G-7 Economies"Long-Term 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.

"Default 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 primary deficit.

Recent Working Papers

In "Fiscal 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.

In "Restoring 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

"Evaluating 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 costs.

"Health 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.

"Revenue 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.

"Revenue 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.

"Government 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

During July–September 2010, FAD provided technical assistance to 37 IMF member countries and multi-country organizations through 42 projects.

Career Opportunities

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.

 

 

September 15, 2010

Now that’s Fiscal Policy, Mate!

Posted by Jason Harris[1]

Australia has one of the strongest fiscal positions in the developed world, with the budget projected to return to surplus in 2012, and net debt projected to peak at 6% of GDP. [2] The relative consensus between the main political parties on the long-standing medium-term fiscal strategy has played a key role in delivering these outcomes. The strong starting position ahead of the global fiscal crisis has given Australia the flexibility to engage in relatively aggressive stimulus policies, without endangering long-term sustainability.

Continue reading "Now that’s Fiscal Policy, Mate!" »

August 04, 2010

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

Continue reading "Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?" »

April 26, 2010

The “Sarkozy Commission” Critiques GDP as a Measure of Well-being

Posted by Dimitar Vlahov

It has become increasingly common over the last decade or so to come across reports of various studies comparing standards of living or satisfaction with life across countries, as in this article or this one. Such rankings come in multiple flavors, depending on the concept to be measured and the methodology employed. Some – such as the Human Development Index, the Quality of Life Index, and the Genuine Progress Indicator – rely solely on the crunching of already existing national statistics and data from academic publications. Others tend to utilize direct surveys or a combination of direct surveys and observed data.  Examples of the latter type include the Happy Planet Index, the Legatum Prosperity Index, or Bhutan’s Gross National Happiness idea (a fascinating story which I encourage you to google further).

Despite the multitude of such initiatives and approaches, however, the academic community, governments and other policy makers continue to use and cite GDP as the main indicator of economic prosperity. Needless to say, we’re all constantly exposed to news reports on the latest GDP figures, coupled with all-important projections for the next quarter or year.

But is GDP good enough as a measure of overall societal well-being? If not, what’s wrong? The president of France, Mr. Sarkozy, has displayed a lot of interest in researching and answering these questions. In February 2008 he asked renowned economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to assemble “The Commission on the Measurement of Economic Performance and Social Progress” (CMEPSP) with a few goals in mind: to point out the limitations of GDP as an indicator of economic performance and social progress; to suggest additional information that could be used to construct better measures of social progress; and to address the feasibility and potential usage of alternative measurement tools. The Commission responded in the fall of 2009 with a publicly-available 291-page report (attached below).

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