Russian
- Executive Summary
(PDF)
Fiscal Monitor
Fiscal Adjustment in an Uncertain World
April 2013
Continued progress in reducing advanced economy deficits and a
gradually improving external environment have lowered short-term fiscal
risks, according to this issue, but global prospects nevertheless remain
subdued, and many advanced economies face a lengthy, difficult, and
uncertain path to fiscal sustainability. Though many advanced economies
are now close to achieving primary surpluses that will allow them to
stabilize their debt ratios, this is only a first step, as merely
stabilizing advanced economy debt at current levels would be detrimental
to medium- and longer-term economic prospects. The key elements of the
required policy package are well known: foremost among them is setting
out—and implementing—a clear and credible plan to bring debt ratios down
over the medium term. Debt dynamics have remained relatively positive in
most emerging market economies and low-income countries, and most plan
to continue to allow the automatic stabilizers to operate fully, while
pausing the underlying fiscal adjustment process. Those with low general
government debt and deficits can afford to maintain a neutral stance in
response to a weaker global outlook. But countries with relatively high
or quickly increasing debt levels are exposed to sizable risks,
especially once effective interest rates rise as monetary policy
normalizes in the advanced economies and concessional financing from
advanced economies declines. The widespread use of energy subsidies
makes commodity prices an additional source of vulnerability in many
emerging market and low-income economies; subsidy reform, higher
consumption taxes, and broadening of tax bases would help support
consolidation efforts.
Download Full Text
Table of Contents
Preface |
Executive Summary |
1. |
Recent Fiscal Developments
and the Short-Term Outlook |
2. |
Medium-Term Fiscal
Adjustment in an Uncertain World |
Appendix 1. Reforming Energy
Subsidies |
Methodological and
Statistical Appendix |
Acronyms |
Country Abbreviations |
Glossary |
References |
Boxes |
1. |
How Can Fiscal Councils
Strengthen Fiscal Performance? |
2. |
The Appropriate Pace of
Short-Term Fiscal Adjustment |
3. |
Bond Yields and Stability of
the Investor Base |
4. |
Potential Sources of
Contingent Liabilities in Emerging Market
Economies |
5. |
Fiscal Adjustment in the
United States: Making Sense of the Numbers |
6 |
Public Debt Dynamics and
Fiscal Adjustment in Low-Income Countries in
Sub-Saharan Africa |
|
Figures |
1. |
Revisions to Overall Balance
and Debt-to-GDP Forecasts since the Last
Fiscal Monitor |
2. |
Fiscal Trends in Advanced
Economies |
3. |
Fiscal Trends in Emerging
Market Economies |
4. |
Energy Subsidies in Emerging
Market Economies and Low-Income Countries,
2011 |
5. |
Fiscal Trends in Low-Income
Countries |
6. |
Underlying Fiscal
Vulnerability Index by Region, 2002–13 |
7. |
Country Groups According to
Debt Level and Trend |
8. |
Net Consolidated Government
and Central Bank Debt, Outstanding
Government-Guaranteed Bonds, and Debt of
Government-Related Enterprises |
9. |
CAPB in 2020–30 and Required
Adjustment Needs, 2013–30, across Different
Scenarios |
10. |
Advanced Economies with
Largest Adjustment Needs: Required Changes
in the Cyclically Adjusted Primary Balance |
11. |
Sub-Saharan Africa: Average
Primary Balance Gap, 2012–17 |
12. |
Maximum Primary Balance and
Growth, 1950–2011 |
13. |
Event Study of the Maximum
Sustained Primary Surplus, 1950–2011 |
14. |
Feasible Adjustment Paths
over 20 Years |
15. |
Impact of Inflation on Net
Debt Reduction, 2017 |
16. |
Key Components of
Nonfinancial Assets, 2011 |
|
Tables |
1. |
Fiscal Balances, 2008–14 |
2. |
General Government Debt,
2008–14 |
3. |
Assessment of Underlying
Fiscal Vulnerabilities over Time |
4. |
Assessment of Underlying
Fiscal Vulnerabilities, April 2013 |
5. |
Selected Advanced Economies:
Financial Sector Support |
6. |
Selected Advanced Economies:
Gross Financing Needs, 2013–15 |
7. |
Selected Emerging Market
Economies: Gross Financing Needs, 2013–14 |
8. |
Recent Empirical Evidence on
the Impact of Debt on Interest Rates and
Growth |
9. |
Summary Statistics for Three
Largest Consolidation Episodes |
|
Statistical Tables |
1. |
Advanced Economies: General
Government Overall Balance and Primary
Balance |
2. |
Advanced Economies: General
Government Cyclically Adjusted Balance and
Cyclically Adjusted Primary Balance |
3. |
Advanced Economies: General
Government Revenue and Expenditure |
4. |
Advanced Economies: General
Government Gross Debt and Net Debt |
5. |
Emerging Market Economies:
General Government Overall Balance and
Primary Balance |
6. |
Emerging Market Economies:
General Government Cyclically Adjusted
Balance and Cyclically Adjusted Primary
Balance |
7. |
Emerging Market Economies:
General Government Revenue and Expenditure |
8. |
Emerging Market Economies:
General Government Gross Debt and Net Debt |
9. |
Low-Income Countries:
General Government Overall Balance and
Primary Balance |
10. |
Low-Income Countries:
General Government Revenue and Expenditure |
11. |
Low-Income Countries:
General Government Gross Debt and Net Debt |
12a. |
Advanced Economies:
Structural Fiscal Indicators |
12b. |
Emerging Market Economies:
Structural Fiscal Indicators |
13a. |
Advanced Economies:
Illustrative Adjustment Needs |
13b. |
Emerging Market Economies:
Illustrative Adjustment Needs |
14. |
General Government
Nonfinancial Assets |
15. |
Components of Consolidated
Government and Central Bank Debt, 2012 |
Executive Summary
Continued progress in reducing advanced
economy deficits and a gradually improving external
environment have lowered short-term fiscal risks, but global
prospects nevertheless remain subdued, and many advanced
economies face a lengthy, difficult, and uncertain path to
fiscal sustainability. Deficits in advanced economies fell
by some ¾ percent of GDP in cyclically adjusted terms last
year and are projected to decline at a somewhat faster pace
in 2013. Thanks to steady consolidation following the peak
of the crisis in 2009, many advanced economies are now close
to achieving primary surpluses that will allow them to
stabilize their debt ratios. Although this is an important
milestone, it is only a first step. High debt—even if
stable—retards potential growth, constrains the scope for
future discretionary policy, and leaves economies exposed to
further market shocks. Sharp increases in public debt have
not yet provoked a surge in interest rates in many advanced
economies, but lower rates are unlikely to persist
indefinitely, especially as they reflect in part very
relaxed monetary conditions that must eventually be
reversed. Moreover, structural changes in sovereign debt
markets may gradually erode some of the special status
countries like Japan and the United States currently enjoy.
Furthermore, with financial sector reform still proceeding
slowly, the potential for contingent liabilities to
materialize from future financial sector disturbances
remains sizable. For all these reasons, merely stabilizing
advanced economy debt at current levels would be detrimental
to medium- and longer-term economic prospects. Sustained
consolidation efforts to reduce debt ratios to more
appropriate levels are therefore essential, although in
practice it is difficult to pinpoint what constitutes a
prudent amount of public debt. Several advanced economies
are now within about 1 percentage point of a primary surplus
that, if maintained, would bring their debt ratios to 60
percent of GDP by 2030. But even maintaining these surpluses
over time may be difficult. Altogether, about one-third of
advanced economies—representing some 40 percent of global
GDP—still face major fiscal challenges. Most of these
countries have never experienced debt levels similar to the
current ones, and certainly not for decades. They will need
to undertake unprecedented fiscal efforts to bring their
debt ratios to traditional norms, even if this is to occur
only over a relatively long horizon.
While achieving sufficiently large primary surpluses and
then maintaining them for an extended period will be
difficult, there are no alternative quick fixes. High
inflation aimed at eroding the real value of the debt or a
debt restructuring would entail substantial and long-lasting
economic and social costs, and thus these are not options to
be entered into lightly. Privatization of government assets
can contribute to the adjustment process, but the stock of
salable assets in most advanced economies is insufficient to
substantially reduce the debt. The amount of fiscal
adjustment that each advanced economy requires depends on
its initial conditions, its ultimate objectives, and the
macroeconomic conditions that will prevail in the interim.
But to make rapid progress in bringing down debt ratios, it
will be critical to maintain the minimum possible
differential between the interest rate on public debt and
the growth rate of the economy. In most cases, there is
scope for structural reforms to raise potential growth,
which would help lower the debt-to-GDP ratio more quickly
both by buoying the fiscal balance and through denominator
effects. Of course, faster growth will likewise help reduce
the social costs of fiscal consolidation and enhance its
political sustainability. And to keep interest rates low, it
will be essential that highly indebted advanced economies
continue to undertake policies that will maintain market
confidence.
The key elements of the required policy package are well
known: foremost among them is setting out—and implementing—a
clear and credible plan to bring debt ratios down over the
medium term. The continued absence of such plans in Japan
and the United States remains a significant concern,
particularly given the introduction of new short-term
stimulus in Japan (even though temporary) and insufficient
progress on measures to restore medium-term fiscal
sustainability, including entitlement reform, in the United
States. Such a plan could also allow the United States to
avoid the excessively large tightening in fiscal policies
that would result if the sequestering of expenditure that
began in March were to continue beyond the current fiscal
year. In conducting near-term policy, authorities in the
advanced economies should focus on structural balances and,
if financing allows, let the automatic fiscal stabilizers
operate fully, to avoid procyclical policies that would
accelerate any downturn in growth (while also ensuring that
any upside growth surprises would be used to pay down debt
more rapidly). However, some advanced economies in which
private demand has been chronically disappointing should
consider smoothing the pace of consolidation if they have
the fiscal policy room for maneuver to do so.
Debt dynamics have remained relatively positive in most
emerging market economies and low-income countries, thanks
to a negative interest rate–growth differential, and these
countries generally allowed automatic stabilizers to operate
fully last year while pausing the underlying fiscal
adjustment process. Most of them plan to continue to do so
this year. Those with low general government debt and
deficits can afford to maintain a neutral stance in response
to a weaker global outlook. But countries with relatively
high or quickly increasing debt levels are exposed to
sizable risks, especially once effective interest rates rise
as monetary policy normalizes in the advanced economies and
concessional financing from advanced economies declines.
Many Arab countries in transition have exhausted their
fiscal buffers and need to contain rising deficits and debt
levels. The widespread use of energy subsidies makes
commodity prices an additional source of vulnerability in
many emerging market and low-income economies. Subsidy
reform, higher revenue from consumption taxes, and
broadening of tax bases would help support consolidation
efforts. Commodity exporters also need to strengthen
nonresource revenue and establish fiscal frameworks to limit
short-term volatility and ensure long-term fiscal
sustainability.
|