Back Matter

Back Matter

Author(s):
International Monetary Fund. Research Dept.
Published Date:
January 1992
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    Annexes
    Annex I Balance Sheet Constraints and the Sluggishness of the Current Recovery

    The recovery from the 1990-91 recession in the United States and the United Kingdom has been relatively sluggish compared with previous cyclical episodes. This sluggishness arises in part from weakness in private consumption expenditures and continued declines in investment outlays. In both countries, balance sheet adjustments appear to have been more prominent in restraining spending than in previous cycles. This annex examines the changes in balance sheet positions in both countries to assess the role that these adjustments may have played, and may continue to play, in the recovery from recession. It also describes briefly the role of balance sheets in the current cycle in Canada, Japan, and several of the smaller industrial countries.

    Balance Sheet Constraints in Recession Countries

    A deterioration of net asset positions in the household and business sectors can affect spending decisions in various ways. In the household sector, for example, a reduction in net worth through market revaluations of assets or the overextension of liabilities may reduce the growth of consumer spending as households attempt to maintain wealth by saving a larger share of current income. In addition, a rise in debt relative to income would increase the share of income required to make interest and amortization payments, leaving less for consumption spending. A similar adjustment process would also occur in the corporate sector as businesses cut back outlays on plant and equipment and devote a larger share of income to servicing existing debt, maintaining dividend payments, and rebuilding net worth positions in order to maintain their creditworthiness and stock prices.

    The economic expansions of the 1980s in the United States and the United Kingdom shared a number of features that may explain the balance sheet adjustments that have occurred recently in these countries, and the impact these adjustments apparently have had on consumer and business spending. During the 1980s, the household sectors in both the United States and the United Kingdom accumulated assets at an unusually rapid pace, financed by a Strong increase in liabilities, and in the latter country this was associated with a sizable increase in the net worth position relative to income (Charts 17 and 18). In both countries, this process of accumulation was associated with a large volume of transactions in housing markets, financed in large part by rising mortgage debt. The expansions were also accompanied by strong growth in investment expenditures, heavily concentrated in commercial real estate markets. Real estate prices increased sharply relative to prices of consumption goods, and this created expectations of continued capital gains on both residential and commercial real estate. Moreover, unlike most expansionary periods, personal saving rates declined in both countries: in the United Kingdom they declined dramatically and both the personal and the industrial and commercial sectors incurred financial deficits.1

    Chart 17.United States: Household Assets, Liabilities, Net Worth, and Home Equity

    (As a ratio of disposable income)

    Source: Federal Reserve Board, Balance Sheets for the U.S. Economy. Total assets include tangible assets, valued at current cost net of straight-line depreciation, and financial assets, consistent with the flow of funds accounts.

    1Owner-occupied residential structures plus owner-occupied land less home mortgages.

    Chart 18.United Kingdom: Personal Sector Assets, Liabilities, Net Worth, and Home Equity

    (As a ratio of disposable income)

    Sources: Central Statistical Office. Financial Statistics and Economic Trends; and staff estimates. Total assets include tangible assets, valued at current market prices, and financial assets, consistent with flow of funds data.

    1Owner-occupied residential structures plus owner-occupied land less home mortgages.

    In the United States, the long expansion in the 1980s was associated with a decline in the personal saving rate and a boom in spending on consumer durables, motor vehicles, and housing (Chart 19). Purchases of consumer durables and motor vehicles were financed in part by installment debt, which rose from 12 percent of disposable income in 1980 to 16 percent in 1989. During this period, a large volume of houses were purchased, partly reflecting the formation of households by the baby-boom generation, and the widespread expectation that the rapid increase in house prices in 1985-89 would continue and would lead to substantial capital gains (Chart 20). The sharp rise in mortgage debt during this period was also associated with the restructuring of household debt in favor of mortgages following the elimination of the deductibility of interest payments on consumer credit. As a result, households assumed a large increase in mortgage debt, which rose from 48 percent of disposable income in 1980 to 65 percent in 1990.

    Chart 19.United States and United Kingdom: Personal Saving

    (In percent of disposable income)

    Chart 20.United States and United Kingdom: Average House Sale Prices and Housing Starts

    Sources: For the United States, Data Resources Inc., data base and for the United Kingdom, Central Statistical Office data base.

    1Average price of a new house in thousands of constant 1987 dollars (using the personal consumption expenditure deflator).

    2Index of prices on all dwellings in constant 1985 prices (using the personal consumption expenditure deflator).

    In the United Kingdom, the period of fast economic growth in the second half of the 1980s also reflected a consumption and real estate boom. The boom was facilitated by financial deregulation earlier in the decade that encouraged greater household borrowing. This borrowing was associated with a sharp decline in the personal saving rate after 1985 to historically low levels—from an annual average of 11¼ percent of disposable income during 1979-85 to an average of 7 percent of disposable income during 1986-88—in contrast to typical saving behavior in periods of economic expansion (see Chart 19). During 1986-88, saving fell short of personal sector investment outlays (mainly in real estate) so that the sector moved into financial deficit. Nevertheless, personal sector net worth continued to rise at a rapid pace because capital gains on assets—particularly in real estate—more than offset the substantial rise in liabilities (see Chart 18).

    In the late 1980s, this process of balance sheet expansion left households in both countries unusually vulnerable to the effects of higher interest rates. The tightening of monetary conditions that occurred in both countries in 1988-89, though more sharply in the United Kingdom, brought an end to asset price inflation. House prices leveled off or declined—in some regions they declined substantially—and the turnover of existing homes and housing starts fell rapidly. Coupled with the drop in house prices and the continued rise in liabilities, household net worth positions declined substantially in real terms and relative to personal disposable income. Households reacted by cutting spending in order to protect their wealth positions, resulting in an increase in saving rates.

    The decline in household net worth in the United States during the current downturn stemmed mainly from a large reduction in home equity. This reduction represented an acceleration in the unprecedented downward trend in home equity that began after the initial recovery from the recession in the early 1980s (see lower panel of Chart 17). During the mid-to-date 1980s, the reduction in home equity resulted to some extent from a tax-induced restructuring of household debt in favor of mortgages. More recently, however, the erosion in home equity has been associated with the decline in house prices (see upper panel of Chart 20). Home ownership constitutes the largest component of household assets and home equity is one of the most tangible measures of household wealth. The recent decline in house prices in some parts of the United States reduced consumer confidence significantly and led households to postpone purchases, in part to reduce their outstanding balances of credit. For 1991 as a whole, households reduced their outstanding consumer installment credit by 1 percent, the first such annual reduction since 1958.

    In contrast, in the United Kingdom there was a positive trend rate of growth in home equity throughout the 1980s: during the recession, however, the real estate boom collapsed and home equity declined substantially (see lower panel of Chart 18). The increase in unemployment and, until recently, high interest rates made it difficult for households to service their mortgage debt, which led to a record number of delinquencies and foreclosures. Thus, following the decline in net worth and the increased difficulties in servicing debt, households in the United Kingdom have also been attempting to improve their balance sheets. This has been manifested in part in a dramatic rebound in the personal saving rate.

    In the business sectors of both economies there was also a protracted period of debt accumulation in the 1980s. In the United States, part of the accumulation of debt was used for massive investment in commercial real estate, mostly office buildings, that eventually far exceeded the demand for such structures. The boom in commercial real estate was partly due to a change in the tax law in 1986 that made these investments relatively more attractive by lengthening depreciation periods. Also during the decade there were a large number of mergers and leveraged buyouts, often involving the substitution of debt for equity which led to a relatively large increase in debt held by the business sector. Total liabilities of the nonfinancial corporate sector in the United States rose as a share of nonfarm business output from about 55 percent in 1980-84 to almost 70 percent in 1990 (Table 11). As a result of these higher levels of debt, net worth declined from over 110 percent of nonfarm output to 85 percent over the same period, and net interest payments as a share of corporate income rose substantially.

    Table 11.Selected Financial Balance Indicators
    1970-741975-791980-84198519861987198819891990
    United States1
    Business assets1.551.611.681.541.561.541.531.521.53
    Business liabilities0.620.540.550.570.610.630.650.680.68
    Business net worth0.921.081.130.970.950.910.880.850.85
    Business net interest payments2.082.032.802.652.732.752.923.223.22
    Business debt-equity ratio0.620.810.730.690.650.600.720.670.71
    United Kingdom2
    Business assets1.701.781.861.911.94
    Of which: Financial assets0.550.580.620.700.750.750.760.870.82
    Business liabilities1.201.011.051.261.451.501.561.801.65
    Business net worth0.690.720.610.460.44
    Business net interest payments0.230.210.200.170.190.280.32
    Capital gearing8.6410.7012.9013.4016.9020.0019.30
    Japan3
    Household assets5.234.966.156.497.268.559.039.829.70
    Household liabilities0.620.670.820.890.921.011.071.121.16
    Household net worth4.614.295.325.616.347.547.958.718.54
    Business assets3.483.523.763.854.194.755.045.385.07
    Business liabilities1.911.901.941.982.002.122.162.172.23
    Business net worth1.571.611.821.882.202.632.883.212.85
    Business net interest payments49.3263.0653.6346.6744.3540.8138.7240.9449.14
    Business debt-equity ratio2.522.702.352.011.421.260.980.781.26
    Sources: For the United States, Federal Reserve Board, Balance Sheets for the U.S. Economy; for the United Kingdom, Central Statistical Office, Financial Statistics; and for Japan, National Income Accounts.

    The business sector is the nonfinancial corporate sector; each variable is expressed as a ratio to nonfarm business output, except net interest payments, which are expressed in percent of nonfarm business output, and the debt-equity ratio.

    The business sector is defined as industrial and commercial companies; all variables are expressed as a ratio to GDP, except capital gearing, which is net debt at book value in percent of fixed capital at replacement cost, and net interest payments, which is a ratio to after-tax income.

    Household data as a ratio to disposable income; the business sector is defined as the nonfinancial corporate sector as a ratio to GDP, except the debt-equity ratio, and business interest payments, which is in percent of available income.

    In the United Kingdom, the expansion during the 1980s was accompanied by a sizable boom in investment spending and an increase in corporate debt. In addition, the structure of balance sheets was also affected by mergers and acquisitions that led to a further expansion in corporate debt. From 1980-84 to 1989, financial liabilities of the business sector nearly doubled as a share of GDP, rising from about 105 percent to 180 percent; in 1990 this ratio declined to 165 percent (see Table 11). Reflecting this buildup of debt, interest payments as a share of after-tax income rose from nearly 25 percent to over 30 percent and capital gearing doubled. A notable feature of the recession in the United Kingdom has been the large number of businesses that failed to meet their debt-service obligations, resulting in insolvencies, bankruptcies, and repossessions of mortgaged properties.

    Thus, in both the United States and the United Kingdom there was a considerable rise in indebtedness to finance both increased consumption and investment in real assets during the expansion of the 1980s. Overinvestment, particularly in real estate, together with a decline in demand owing to higher real interest rates and unemployment associated with normal cyclical developments, led to the deflation of real asset prices, a decline in net worth, and a cutting back on current expenditures to devote a larger share of income to rebuild net worth and make the higher interest and amortization payments. In the United States, the rapid pace of debt accumulation was often highlighted as a major risk, especially in light of the relatively high real interest rates during the 1980s.2 However, few observers foresaw that debt levels would reach a magnitude (in real terms, relative to disposable income, and relative to assets) that would restrain consumer spending enough to become a major force in the business cycle. It also appears that the process of adjusting balance sheets has significantly affected household and business confidence, which has reached unusually low levels in both countries.

    Balance Sheet Positions in Other Industrial Countries

    In Canada, net worth positions have not deteriorated to the extent they did in the United Kingdom or the United States, and they do not appear to have been a major factor in the sluggishness in the recovery there. Liabilities in the household sector rose rapidly in the latter half of the 1980s, and home equity declined during the recession, but net worth essentially stabilized rather than declined. In continental Europe, where economic growth has continued at a moderate pace, balance sheet positions do not appear to have deteriorated, at least not significantly, and thus they are not expected to be a factor constraining economic growth in the near term.

    In Japan, however, economic activity has slowed sharply recently, and land and equity prices have continued to decline, following the period of unusually rapid asset price inflation from 1986 to the end of 1989. During this period, the ratio of household net worth to disposable income increased from about 5¼ percent in 1980-84 to nearly 8¾ percent in 1989 (see Table 11). The household net worth position deteriorated slightly in 1990, and probably continued to fall in 1991, mainly because of the substantial decline in equity prices, which totaled about 41 percent from the peak reached at the end of 1989 to the end of 1991. While comprehensive land price data are not available, land prices do appear to have declined modestly during 1991, and suggest a further decline in the ratio of net worth to income in 1991 to the range that prevailed in 1987-88.

    Financial indicators of the nonfinancial corporate sector suggest that Japanese corporations on the whole have been improving their financial positions, with declining ratios of debt to equity and interest payments to income.3 Thus, while weak asset prices pose some risk to the outlook in Japan, at this point the economy is not expected to slow sharply because of balance sheet constraints.

    In a number of the smaller industrial countries, economic growth has also been constrained by private sector financial consolidation, most notably in Australia, New Zealand, Norway, and Sweden. While the adjustment process has been unique in each of these countries—because of timing, sectoral coverage, or intensity—there have been a number of common causes and consequences associated with the adjustments. Notable among the causes was the deregulation of financial markets in the mid-1980s.4 In each country, financial deregulation was accompanied by accommodative, if not lax, monetary policies that led to an acceleration of prices in asset markets, concentrated in the residential and commercial real estate markets. Subsequently, monetary policies were tightened and, as interest rates rose, asset market prices adjusted, leaving some sectors of the economy with lower net worth positions. All of these countries experienced output losses as households, businesses, and in some cases financial institutions experienced financial distress and reduced expenditures to adjust balance sheets.5 As noted in Chapter II, a weak economic recovery is expected in the group of smaller industrial countries, in part because of this process of financial consolidation in these four countries.

    Implications for the Near-Term Outlook

    Despite the substantial adjustments already undertaken in the United States and in the United Kingdom, a number of factors are now working to loosen the balance sheet constraints on private sector spending. Nominal interest rates in both countries are much lower than they have been during the last few years, particularly in the United States, where short-term interest rates declined by about 3 percentage points in 1991. Moreover, a portion of previous debt contracts has been refinanced at these lower interest rates, contributing to a further easing of the debt burden. Furthermore, it appears that indebtedness has been reduced to some extent and this adjustment process may soon be completed. However, the stock of office buildings in the United States still exceeds demand by a wide margin, so that adjustment in this sector is likely to continue. As employment recovers in 1992-93, and household and business incomes grow more in line with previous expansions, confidence is also likely to be restored as debt-service and amortization payments become more manageable. All of these factors will tend to hasten the completion of balance sheet adjustments, but the precise timing of a turnaround is of course uncertain.

    Annex II The Maastricht Agreement on Economic and Monetary Union

    At the Maastricht summit in December 1991, the heads of state or government of the European Community agreed on far-reaching proposals for the transition to a single currency, the European currency unit (ECU), and the establishment of a European System of Central Banks. In addition to the agreement on economic and monetary union (EMU), the summit also agreed on a treaty that formally establishes a European Union, commits the Community’s member states to strive for closer cooperation on foreign and security policy, and slightly expands the powers of the European Parliament. The member states, with the exception of the United Kingdom, agreed to work toward minimum requirements for social policies outside the treaty framework.

    The monetary union will be reached in three stages as envisaged in the report of the Delors Committee issued in April 1989.1 During Stage I, which began on July 1, 1990, and Stage II, due to begin in 1994, member governments will endeavor to achieve greater convergence of their economies as measured by four criteria: inflation, interest rates, exchange rate stability, and the sustainability of the fiscal position (see below). At the start of Stage III, which could begin as early as 1997 but no later than January 1, 1999, member states that participate in the final stage will irrevocably fix their exchange rates and subsequently introduce a single currency. Other member states will join once their economies are found to meet the necessary conditions. The United Kingdom, however, retains the right not to join the monetary union, and Denmark will hold a referendum on June 2, 1992 on the proposed treaty.

    The Maastricht agreement firmly establishes that the primary objective of monetary policy and exchange rate policy “shall be to maintain price stability and, without prejudice to this objective, to support the general economic policies in the Community, in accordance with the principle of an open market economy with free competition.” In support of the price stability objective, the member states will endeavor to avoid excessive budget deficits and have agreed to eliminate central bank financing of public expenditure by the beginning of Stage II. They have also agreed to make their central banks independent of governments by the beginning of Stage III. Once a single currency has been adopted, the member states are obliged to continue to avoid excessive budget deficits, and procedures have been agreed that would allow the Council of Ministers to take measures against a member state that fails to comply with a Council decision that its deficit must be reduced. In examining the reasons for excessive deficits, the Commission will consider the possible influence of exceptional or temporary factors.

    Monetary Institutions

    At the beginning of Stage II, a new institution, the European Monetary Institute (EMI), will be established, replacing the Committee of Central Bank Governors. The EMI will be directed and managed by a Council consisting of the governors of the central banks of the member states and a President appointed by the European Council. Although the EMI will not be responsible for monetary policy, it will provide a forum for strengthening the coordination of monetary policies of the member states. The EMI will also promote greater cooperation in all aspects of central bank policy: facilitate the use of the ECU and oversee the smooth functioning or the ECU clearing system; prepare the instruments and procedures necessary for carrying out a single monetary policy in the third stage; and supervise the technical preparation of ECU bank notes.

    In Stage III, the EMI will be replaced by a European Central Bank (ECB) which, together with the central banks of the member states, will form the European System of Central Banks (ESCB). The basic tasks of the ESCB will be to formulate and implement the monetary policy of the Community; conduct foreign exchange operations, taking into account “orientations” formulated by the Council of Ministers; hold and manage the official foreign reserves of the member states; and promote the smooth operation of payments systems.

    Convergence Criteria

    For each country, the economic conditions for participation in the monetary union and adoption of the ECU are expressed in quantitative terms for a range of indicators. First, consumer price inflation in the year prior to examination by the European Council must not exceed by more than 1½ percentage points the average for the three member states with the lowest inflation rates.2 Second, interest rates on long-term government securities must not be more than 2 percentage points higher than those in the same three member states. Third, the currency must have been held within the narrow band of the exchange rate mechanism of the European Monetary System for two years without a realignment at the initiative of the member state in question. Finally, a sustainable financial position must be attained. This is defined as a general government deficit no greater than 3 percent of GDP and a ratio of public debt to GDP of no more than 60 percent.

    In the evaluation of progress toward the economic convergence criteria, the treaty allows for a degree of discretion. In particular, the treaty requires a substantial and continuous decline of fiscal deficits toward the reference value, while the debt ratio must be approaching the benchmark at a “satisfactory pace.” The final judgment on whether a member state meets the economic criteria will be made by one or more summits of EC heads of state or government, the first of which will be held in 1996. In coming to a decision, the summit will take into account other indicators of economic performance, such as unit labor costs, the current account of the balance of payments, and the integration of markets. The summit must also decide—as a precondition for EMU to begin in 1997—whether a majority of countries have achieved convergence. If this is not the case, an additional summit to be held before mid-1998 will determine which, if any, member states satisfy the convergence criteria; Stage III will in any event begin on January 1, 1999, at the latest.

    On the basis of the situation in 1991, seven EC members currently satisfy the inflation, interest rate, and exchange rate criteria (Table 12). This group includes Belgium. Denmark. France. Germany. Ireland. Luxembourg, and the Netherlands. (In early 1992, the United Kingdom’s inflation rate also was within the price criterion shown in (Table 12.) In Greece and Portugal inflation remains substantially higher than the upper limit prescribed by the treaty, and inflation rates in Italy and Spain also are well above the inflation criterion. A smaller number of countries meet the quantitative fiscal criteria at this time. In Belgium. Greece, Ireland, and Italy, the ratio of gross public debt to GDP is close to or exceeds 100 percent; Portugal, too, will need to undertake extensive fiscal consolidation. For these member states it is apparent that a major effort will be required to meet the agreed convergence criteria.

    Table 12.European Community: Convergence Indicators for 1991
    Consumer Prices

    (Percent change)
    Long-Term Interest Rates on Government Securities

    (In percent)
    General Government Budget Balance

    (Percent of GDP)1
    Ratio of Public Debt to GDP2
    Belgium3.29.3-6.3129.4
    Denmark2.29.0-1.066.7
    Germany3.58.5-3.345.6
    Greece17.724.53-17.096.4
    France3.19.2-1.947.2
    Ireland2.59.7-2.4102.8
    Italy6.413.0-10.2101.2
    Luxembourg3.48.31.56.9
    Netherlands3.88.7-3.670.4
    Portugal11.514.0-6.764.7
    Spain5.912.8-4.445.6
    United Kingdom5.99.9-2.343.8
    EC average44.710.1-4.460.8
    EMU criterion54.411.3-3.060.0

    Preliminary estimates.

    Based on Commission of the European Communities, European Economy (Luxembourg), No. 50 (December 1991).

    Interest rate on 24-month government notes.

    Composites are weighted averages using 1988-90 GDP weights.

    Applied to the situation in 1991.

    To promote greater convergence the member states will, where necessary, submit medium-term convergence programs, outlining in detail the measures that are planned to achieve the required improvements in performance. These programs will be subject to scrutiny and approval by the Council of Ministers. Ireland, Italy, and Portugal have already submitted such convergence programs. The Italian program envisages a reduction of the budget deficit from 10½ percent of GDP in 1991 to about 5½ percent in 1994: this improvement, however, would barely be sufficient to stabilize the public debt ratio at about 100 percent of GDP (see Annex IV). Under the program submitted by Portugal, the budget deficit would be reduced from 6½ percent of GDP in 1991 to an average of 3 percent of GDP in 1993-95. Ireland, which has already made significant progress in reducing the budget deficit in recent years, will seek to consolidate these gains; this would permit a further reduction in the public debt ratio.

    Structural Adjustment

    The monetary union is intended to support other aspects of integration. The single market program, already being implemented and due to be completed by the end of 1992, provides for close harmonization of national standards in a wide range of areas and opens virtually all aspects of economic activity to free competition. The program also includes plans to harmonize taxes across the member states, notably excise taxes and VAT rates, where a minimum rate of 15 percent on most products and a base rate of 4 percent to 9 percent on necessities, have been proposed by the Commission.

    To promote financial integration, the single market program envisages the establishment of a single market for financial services. A number of EC directives, several of which have already been approved, establish standards for market entry, solvency, capital adequacy, and accounting procedures. However, responsibility for prudential supervision of financial market institutions remains with national authorities. There is an ongoing debate whether closer cooperation among national supervisory authorities will be sufficient to guard against financial market fraud and failure, or whether a central supervisory authority will need to be established. The Maastricht treaty already provides for a possible transfer of responsibility for prudential supervision of credit institutions to the European Central Bank, a step that would require the unanimous approval of the Council of Ministers.

    The functioning of European labor markets will have an important bearing on the success of EMU as may be illustrated by the experience of the United States, where labor markets are relatively flexible. Without the possibility of exchange rate adjustments to offset the effects on competitiveness of differential wage cost developments among regions (for example, as a result of supply disturbances), or to generate shifts in competitiveness that may be warranted by changes in economic conditions, a high degree of labor market flexibility is necessary to contain structural unemployment. The single market program should promote increased labor mobility, but this will not be sufficient to ensure a high degree of flexibility. Moreover, mobility is also unlikely to become as prominent as it is in the United States because of language and cultural barriers: therefore, wage developments in Europe would need to be even more sensitive to conditions in local labor markets to ensure high employment.

    The extent of labor market rigidities in the European Community is indicated by Table 13, which shows the average unemployment rate during the five years with the lowest rates of unemployment recorded since 1981. A proxy for structural unemployment, this indicator shows an average of 8½ percent for EC member states, compared with 6 percent for the United States. It is also worth noting that in the three EC countries with the best price performance in 1991—Denmark. France, and Ireland—the most recent reductions in inflation have been achieved partly by allowing actual unemployment to rise above the levels indicated by the proxy rate of structural unemployment. These indicators suggest a need for substantial improvements in the functioning of European labor markets to meet the requirements of EMU while also reducing rates of unemployment.

    Table 13.European Community: Unemployment Rates
    1991Average Rate of Unemployment in Five Years with Lowest Unemployment Rate During

    1981-91
    Belgium9.69.6
    Denmark9.58.5
    Germany6.55.9
    Greece8.57.2
    France9.68.4
    Ireland13.712.6
    Italy10.99.5
    Luxembourg1.31.3
    Netherlands7.58.3
    Portugal4.95.5
    Spain16.116.1
    United Kingdom8.17.3
    EC average19.18.4
    Standard deviation3.73.5
    Memorandum
    United States6.85.8
    Japan2.12.2

    Composites are weighted averages using 1988-90 GDP weights.

    It cannot be excluded, of course, that wage earners and employers will adapt their behavior in the face of the strong commitments of EC governments to reduce inflation and strengthen economic convergence. However, there is also the risk that expectations in low-income countries and regions will adapt to the norms of high-income regions faster than the growth in productivity would warrant, which could lead to higher structural unemployment.

    It is therefore essential that the policy programs leading to EMU place considerable emphasis on labor market policies. The goal must be to ensure that national and regional wage patterns are aligned more closely with the corresponding levels and trends of productivity without requiring excessive rates of unemployment, in this context, it will be important to ensure that social policy objectives are achieved without jeopardizing the necessary improvements in labor market flexibility.

    Policies that would promote a better functioning of labor markets are discussed in the section on “The Need to Reinvigorate Efforts to Achieve Medium-Term Objectives” in Chapter II.

    Enlargement and Association Agreements

    The Maastricht agreement provides that “any European State whose systems of government are founded on the principle of democracy may apply to become members of the [European] Union” Some countries have already applied for membership in the Community, including most recently Austria. Finland, and Sweden.3 In terms of monetary cooperation. Sweden recently has linked the krona to the ECU, and Austria for a long time has linked the schilling closely to the deutsche mark. Moreover, Austria and Sweden already appear to broadly meet the convergence criteria for the third stage of EMU.

    The members of the European Free Trade Association (EFTA) have also recently concluded negotiations with the EC for the establishment of a European Economic Area, extending the Community’s single market for goods, services, capital, and labor among the member countries of the EC and EFTA. This agreement will help potential candidates for EC membership in the EFTA area adapt their structural policies to match those of the Community, thereby preparing the ground for membership. (Signing of the agreement was held up by questions raised by the EC Court of Justice about the judicial mechanism that is proposed in the draft agreement: this issue appears to have been resolved in February 1992.)

    In addition, last year the Community concluded association agreements with Czechoslovakia, Hungary, and Poland that provide for assistance and preferential trade access to the EC. Negotiations on association agreements with Bulgaria and Romania are expected to begin in 1992. Several of the Eastern European countries have indicated their intention of applying for full membership of the European Community in due course.

    Annex III Medium-Term Projections

    As in the past, the staffs medium-term projections are conditional upon a number of technical assumptions and do not, therefore, represent forecasts of the most likely outcomes. These technical assumptions include unchanged policies, except for those measures that have already been announced and are virtually certain to be implemented; constant real effective exchange rates, except for the bilateral rates among the ERM which are assumed to remain constant in nominal terms; and specific projections for world oil prices and interest rates.1

    Baseline Scenario for the Industrial Countries

    On the basis of these assumptions, real GDP growth in the industrial countries is projected to recover from 1¾ percent this year to about 3 percent in the period 1993-97 (Table 14). This would reflect a recovery from recession in the United States, the United Kingdom, Canada, and some of the smaller industrial countries (Australia, Finland, New Zealand, Sweden, and Switzerland), as well as a pickup in growth in France, Italy, and some of the other European countries (Belgium. Denmark, Greece, Ireland, the Netherlands, and Spain). Economic growth would also pick up in unified Germany, reflecting a rising growth rate in the former west Germany to the estimated rate of expansion in potential output.2 and growth in the former east Germany that would moderate steadily through 1997. In Japan, output growth averaging nearly 5 percent in 1990-91 is expected to moderate to a more sustainable pace in the medium term.

    Table 14.Industrial Countries: Selected Indicators of Economic Performance(Changes in percent except where otherwise noted)
    Average

    1979-88
    19891990199119921993Average1

    1994-97
    All industrial countries
    Real GDP/GNP2.73.42.50.80.83.33.1
    Real total domestic demand2.73.42.30.61.73.33.2
    GDP/GNP deflator5.84.14.13.93.23.12.7
    Current account balance (in percent of GDP/GNP)2-0.5-0.6-0.6-0.2-0.3-0.4-0.4
    Major industrial countries
    Real GDP/GNP2.73.32.50.81.73.43.2
    Real fixed private investment3.05.13.1-2.61.15.35.1
    Real total domestic demand2.83.22.30.61.63.43.2
    GDP/GNP deflator5.53.93.83.83.03.02.5
    General government balance (in percent of GDP/GNP)2,3-2.9-0.9-1.6-2.4-3.0-2.61.1
    Current account balance (in percent of GDP/GNP)2-0.3-0.5-0.6-0.1-0.2-0.3-0.4
    Canada
    Real GDP3.22.50.5-1.52.34.9
    Real fixed private investment5.95.2-4.6-5.55.07.2
    Real total domestic demand3.43.8-0.2-0.62.54.4
    GDP deflator6.24.73.02.72.42.6
    General government balance (in percent of GDP)3-4.4-3.1-3.8-5.4-3.9-2.6
    Current account balance (in percent of GDP)-0.9-3.2-3.3-3.9-2.9-2.7
    United States
    Real GDP2.52.51.0-0.71.63.5
    Real fixed private investment1.80.4-1.6-7.62.07.9
    Real total domestic demand2.61.90.5-1.31.23.6
    GDP deflator5.64.44.13.72.42.9
    General government balance (in percent of GDP)3-2.3-1.6-2.5-3.5-4.7-3.7
    Current account balance (in percent of GDP)-1.6-2.0-1.7-0.2-0.9-1.1
    Japan
    Real GNP4.14.85.24.52.23.9
    Real fixed private investment5.912.610.73.2-0.54.0
    Real total domestic demand3.85.85.43.01.84.0
    GNP deflator2.01.92.11.92.11.9
    General government balance (in percent of GNP)3-2.22.52.93.03.03.0
    Current account balance (in percent of GNP)1.82.01.22.12.62.3
    France
    Real GDP2.13.92.81.21.82.6
    Real fixed private investment1.37.24.7-2.50.72.2
    Real total domestic demand2.33.53.21.01.42.3
    GDP deflator7.83.22.82.92.52.3
    General government balance (in percent of GDP)3-2.1-1.2-1.6-1.9-1.8-1.7
    Current account balance (in percent of GDP)-0.5-0.5-0.7-0.5-0.4-0.3
    Germany
    Real GNP1.83.84.51.22.03.0
    Real fixed private investment1.77.49.77.42.33.8
    Real total domestic demand1.62.54.44.12.32.7
    GNP deflator3.22.63.44.85.24.4
    General government balance (in percent of GNP)3-2.30.2-2.1-3.3-3.6-3.1
    Current account balance (in percent of GNP)1.54.82.9-1.2-0.8-0.5
    Italy
    Real GDP2.73.02.01.01.62.4
    Real fixed private investment1.54.15.51.61.82.7
    Real total domestic demand3.03.01.92.02.22.7
    GDP deflator12.46.07.57.55.25.2
    General government balance (in percent of GDP)3-10.8-10.0-10.6-10.2-10.4-10.4
    Current account balance (in percent of GDP)-0.6-1.2-1.3-1.7-1.7-1.8
    United Kingdom
    Real GDP2.32.31.0-2.20.83.1
    Real fixed private investment5.65.0-3.8-10.4-4.03.8
    Real total domestic demand2.93.3-0.1-3.10.92.9
    GDP deflator8.27.16.46.94.43.1
    General government balance (in percent of GDP)3-2.41.2-0.7-2.3-5.1-5.7
    Current account balance (in percent of GDP)0.3-4.0-2.8-0.8-1.4-1.6
    Other industrial countries
    Real GDP2.33.82.50.82.02.73.0
    Real total domestic demand2.14.62.40.72.02.72.9
    GDP deflator7.55.85.85.04.53.83.7
    Current account balance (in percent of GDP)2-1.2-1.2-0.8-0.6-0.6-0.5-0.4

    These projections are based on the assumptions of unchanged policies and constant real exchange rates and oil prices.

    The last column refers to 1997.

    National accounts basis.

    In most of the major industrial countries, total domestic demand would grow at approximately the same rate as output during 1994-97, and changes in trade and current account balances would be relatively small in relation to GDP. However, external deficits are likely to deteriorate over the next few years in Italy, where inflation is forecast to remain high relative to trading partners, and in the United Kingdom, owing to the projected economic recovery and a fail in factor income from abroad as a result of the continued reduction in foreign assets that started in 1986.

    The medium-term projections for growth are broadly in line with current staff estimates of the trend in potential output. However, the contraction in output in 1991 in North America and the United Kingdom, and the slower-than-potential growth in Italy, result in a persistent, albeit declining, gap between actual and potential output in these countries. This contributes to a moderation in inflation over the medium term. In Germany, inflation is also projected to moderate starting in 1993. These trends, together with similar price movements in most of the smaller European countries, would contribute to a convergence of inflation in the European Community during 1994-97, in accordance with the objectives agreed at Maastricht, even though the economic convergence criteria may not be fully met in all cases (see Annex II). In Japan and France, real GDP growth over the medium term is projected to be broadly consistent with the estimated rise in potential output, allowing inflation to remain at low levels.

    The baseline projections envisage a cyclical improvement in the budgetary positions of most of the industrial countries in 1993-94, and assume a continuation of the policy of fiscal consolidation over the medium term. If realized (see Annex IV), the strengthening of public finances over the next five to six years would permit a significant increase in the rate of capital formation in the private sector in all of the major industrial countries from the depressed levels of 1990-91. In Germany, an increase in domestic investment over the medium term, partly on account of the transformation and reconstruction of east Germany, would limit the outflow of saving to the rest of the world, compared with the situation prevailing prior to unification.

    An Alternative Fiscal Adjustment Scenario for Germany

    To illustrate the possible effects of strengthening the fiscal adjustment process in Germany, an alternative scenario was analyzed in which the reduction in the deficit takes place somewhat faster than is currently envisaged. In particular, government expenditures are assumed to be reduced by ½ of 1 percentage point in 1993, and by a further ½ of 1 percentage point in 1994, relative to the budget assumptions that are included in the staffs baseline projections. These magnitudes were chosen purely for illustrative purposes.

    Table 15 shows the estimated effect of the assumed fiscal adjustment in Germany with an unchanged stance of monetary policy. Such fiscal action would reduce interest rates somewhat, and it would tend to reduce upward pressure on the deutsche mark. This would, in turn, permit a general reduction in interest rates throughout Europe. The simulation suggests that growth initially would slow slightly in west Germany, but then recover in response to the induced increase in real investment. Output in other ERM countries would be positively affected by the assumed fiscal action in Germany, as the stimulus to investment induced by lower interest rates would more than outweigh the impact of the reduction in exports to Germany.

    Table 15.Domestic and International Effects of Faster Fiscal Adjustment in Germany in 1993 and 19941(Deviations from baseline in percent)
    West GermanyERM Partners
    199319951997199319951997
    Real GNP-0.1-0.10.10.10.20.1
    Real investment0.10.40.50.40.60.4
    Short-term interest rate (percentage points)-0.1-0.2-0.1-0.1
    Real long-term interest rate (percentage points)-0.1-0.2-0.1-0.2-0.1
    GNP deflator (level)-0.1-0.3-0.30.10.50.8
    Real effective exchange rate-0.4-0.8-0.9-0.10.1
    Current account balance (in billions of U.S. dollars)3.57.88.3-4.1-5.1-4.2

    This scenario is symmetric to the simulation reported in the October 1990 issue of the World Economic Outlook, which illustrated the effects of unification on Germany and its partner countries in the exchange rate mechanism of the European Monetary System. The scenario was generated using the MULTIMOD econometric model (for a description, see MULTIMOD Mark II: A Revised and Extended Model, by Paul Masson, Steven Symansky, and Guy Meredith, IMF Occasional Paper No. 71 (Washington: International Monetary Fund, July 1990)).

    The fairly small impact on long-term interest rates in this scenario can be attributed to the relatively strong impact on private investment that results from the model’s forward-looking assessment of the effect of reduced fiscal deficits on government borrowing requirements. Because of this “crowding-in” effect, the demand for financial resources shifts from public sector demand to private sector demand, so that the net impact on long-term interest rates is relatively modest.

    Baseline Scenario for the Developing Countries3

    In developing countries with Fund-supported adjustment programs, the medium-term projections assume the implementation of the policies underlying the programs.4 The assumptions for exchange rates and commodity prices, together with the price developments in industrial countries discussed above, would imply a marginal improvement in the terms of trade for net debtor countries in 1994-97, compared with a small decline in 1987-91. Total financing flows to net debtor countries are assumed to increase in the medium term, reflecting a continuation of the modest resumption of commercial bank lending to some developing countries in 1990-91, and the recent sharp pickup in some countries of non-debt-creating flows, including foreign direct investment and the return of flight capital.

    Based on these assumptions, and the medium-term projections for industrial countries discussed above, real GDP growth in the developing countries is projected to average 5½ percent in 1994-97, somewhat below the growth in 1992-93—which is expected to be boosted by reconstruction in the Middle East region—but considerably faster than in 1987-91 (Table 16 and Tables A51-A53 of the Statistical Appendix). The performance of countries that have recently experienced debt-servicing difficulties is projected to improve markedly, with growth rising to 5 percent in 1994-97, compared with about 1¼ percent in the ten years to 1991. These projections depend crucially on the assumption that adjustment policies and structural reforms are successfully implemented. On this assumption, inflation would fall to 14 percent in 1994-97 in countries with recent debt-servicing difficulties, and investment ratios would rise by almost 3 percentage points compared with 1987-91 levels, mainly financed by a corresponding increase in domestic saving.

    Table 16.Developing Countries: Indicators of Economic Performance(Annual averages)
    1982-911987-911992-931994-97
    Developing countries excluding
    Eastern Europe and former U.S.S.R.
    (Percent changes or percent of GDP)
    Real GDP3.53.86.15.4
    Investment ratio24.424.925.1
    Export volume5.68.78.78.4
    Import volume3.88.89.08.1
    Terms of trade-2.6-0.1-0.90.3
    Consumer prices44.056.326.416.5
    (In billions of U.S. dollars)
    Trade balance30.733.4-18.81.1
    Current account balance-37.6-27.5-71.7-59.2
    Total net external credit49.550.589.878.4
    Memorandum
    Net official credit130.931.123.3
    Net bank credit214.232.929.0
    (In percent of exports of goods and services)
    Total external debt3125.7125.7112.586.8
    Debt-service payments15.816.713.912.2
    Of which: Interest payments7.88.26.65.6
    Countries with recent debt-servicing difficulties
    (Percent changes or percent of GDP)
    Real GDP1.31.16.44.9
    Investment ratio19.720.722.3
    Export volume3.64.17.55.3
    Import volume1.92.67.85.2
    Terms of trade-3.9-1.7-0.40.5
    Consumer prices109.9160.255.713.6
    (In billions of U.S. dollars)
    Trade balance13.917.1-2.35.8
    Current account balance-31.2-24.2-33.2-31.7
    Total net external credit25.124.427.224.3
    Memorandum
    Net official credit121.115.49.6
    Net bank credit21.72.64.3
    (In percent of exports of goods and services)
    Total external debt3295.8295.8253.9203.9
    Debt-service payments28.229.928.024.5
    Of which: Interest payments14.416.414.912.0
    Countries without debt-servicing difficulties
    (Percent changes or percent of GDP)
    Real GDP6.56.35.45.7
    Investment ratio28.629.229.028.3
    Export volume9.912.110.510.7
    Import volume8.211.810.210.1
    Terms of trade-0.70.1-0.20.2
    Consumer prices10.811.612.126.0
    (In billions of U.S. dollars)
    Trade balance-25.8-24.2-46.2-52.3
    Current account balance-12.9-6.4-26.5-27.0
    Total net external credit22.122.046.150.5
    Memorandum
    Net official credit17.59.411.611.1
    Net bank credit29.419.223.8
    (In percent of exports of goods and services)
    Total external debt384.884.875.459.6
    Debt-service payments13.615.011.19.9
    Of which: Interest payments6.46.04.33.9

    Estimate of long-term borrowing from official creditors. See footnotes to Table A40 in the Statistical Appendix for further explanation.

    Estimate of net lending from commercial banks. See footnotes to Table A40 in the Statistical Appendix for further explanation.

    At year end, excluding liabilities to the Fund.

    The assumption of sustained adjustment is particularly critical for the projected increase in growth in the Western Hemisphere. Many countries in this region have undertaken major reforms in the areas of trade, foreign investment, fiscal policy, privatization, and financial and labor markets. These reforms, together with the expected net positive inflow of external resources, would raise GDP growth to about 5 percent in the medium term, compared with 1¼ percent in 1987-91.

    In Africa, growth is projected to pick up to 3¼ percent in 1994-97, assuming success in structural reforms in many countries, reductions in civil strife, and a small improvement in the region’s terms of trade. In the Middle East, the high growth due to reconstruction of war damage in 1992-93 is expected to be followed by average annual increases in real output of 5 ½ percent in 1994-97, Real output in Asia is projected to increase by about 6¼ percent on average in 1994-97. This would be somewhat higher than in 1992-93 reflecting, in part, the expected implementation of policies to liberalize trade, modernize the financial system, and increase infrastructure investment.

    The combined current account deficit of the developing countries is projected to decline to an average of $59 billion a year in 1994-97. In countries without recent debt-servicing difficulties, the combined current account deficit is anticipated to remain broadly stable, on average at around $27 billion, throughout the short and medium term. The $4 billion increase in the projected net external borrowing, to $51 billion annually, largely reflects rapid growth in countries such as Korea, Thailand, and Turkey that have preserved access to international capital markets, These countries are also expected to receive growing inflows of foreign direct investment.

    In the group of countries with recent debt-servicing difficulties, trade surpluses are expected to reach nearly $6 billion annually, contributing to a reduction in the combined current account deficit. The current account balance of the net creditor countries, particularly in the Middle East, is expected to return to surplus by 1995 as reconstruction is completed.

    The success of the debt strategy is reflected in a projected easing of the debt-servicing burden of the developing countries in the medium term.5 The debt strategy is expected to continue to support macroeconomic stability and sustainable growth in debtor countries, and to encourage measures to restore external viability, including adequate financing and comprehensive debt restructuring. As a result of debt reductions, reduced levels of borrowing, and better export performance, the aggregate debt-export ratio of the developing countries is projected to decline to an average of about 90 percent in 1997, about half of the 1986 peak.

    The importance of domestic saving for growth in the medium-term projections is indicated by trends in the net resource balance—defined as the balance on goods and nonfactor services—and in the inflow of financial resources to the developing countries (Chart 21). Countries with recent debt-servicing difficulties that are largely finance-constrained must meet any excess of net international factor payments over net capital inflows (including unrequited transfers) by earning more from their exports of goods and services than they spend on imports; that is, their domestic absorption must be less than their domestic output. The projected decline in the relative importance of the inflow of financial flows to countries with recent debt-servicing difficulties thus requires that their resource balance remain positive, despite the declining trend in the debt-servicing burden.6 The difference in the growth projections for countries with and without recent debt-servicing difficulties reflects the ability of the latter to maintain a high level of net external borrowing, which is projected to rise from more than $46 billion annually during 1992-93 to $51 billion annually during 1994-97. By contrast, the amount of net credit extended annually to countries with recent debt-servicing difficulties is expected to decline by $3 billion, to around $25 billion in 1994-97, largely owing to a reduced recourse to external borrowing by the 15 heavily indebted countries.

    Chart 21.Developing Countries: Net Resource Transfer1

    (In percent of GDP)

    1Excludes Eastern Europe and the former U.S.S.R. Shaded areas indicate staff projections.

    Policy Slippage Scenario for the Developing Countries

    As noted above, the medium-term projections for the developing countries assume a sustained and successful implementation of adjustment programs. If, however, the momentum for structural reforms is not sustained and policy slippages emerge in a number of countries, inflation would fall more slowly than in the baseline, with detrimental effects on investment and growth. To illustrate how policy slippages might affect the medium-term projection for the developing countries, it is assumed that in countries with Fund programs and very high inflation during 1990-91, inflation would fall only to the 1984-89 level in the medium term, rather than to the much lower levels projected in the baseline. It is also assumed that because of higher inflation and slippages in other aspects of the adjustment program, the rise in investment ratios and total factor productivity between 1987-91 and 1994-97 would be only half as large as in the baseline.

    The consequences of policy slippages for the medium-term outlook are illustrated in Table 17 using a simple growth-accounting framework. For net debtor countries with adjustment programs, average inflation in 1994-97 in the alternative scenario would be about 20 percentage points higher than in the baseline, with particularly sharp rises in the Western Hemisphere and the most heavily indebted countries. Investment ratios would be only marginally lower than in the baseline, but total factor productivity growth in 1994-97 would fall from 2½ percent to 2 percent a year for all net debtor countries, and from 3 percent to 2¼ percent a year for the 15 heavily indebted countries. The annual average growth of potential output would fall from 4¾ percent to about 4 percent for the program countries as a group. These results probably understate the effect of policy slippages on growth because indirect effects of lower investment on aggregate demand are not taken into account.

    Table 17.Developing Countries: Alternative Projections for Inflation and Growth, 1994-971(Annual averages, in percent of GDP)
    InflationInvestment RatioGrowth of Total Factor Productivity2Growth of Potential Output2
    BaselineAlternativeBaselineAlternativeBaselineAlternativeBaselineAlternative
    Net debtor countries6.426.123.122.92.62.04.74.1
    By region
    Africa5.816.523.723.32.11.54.13.4
    Asia5.25.223.723.72.02.05.05.0
    Europe8.314.825.325.13.92.04.12.2
    Middle East5.75.720.920.91.51.53.15.1
    Western Hemisphere7.163.621.521.32.92.25.04.4
    By analytical criteria
    Countries with recent debt-servicing difficulties6.642.921.221.02.92.24.74.0
    Countries without debt-servicing difficulties6.06.125.725.72.11.74.54.1
    Fifteen heavily indebted countries25.650.521.220.92.92.24.94.2

    Developing countries excluding Eastern Europe and the former U.S.S.R. The alternative scenario assumes that adjustment programs and structural reforms are not fully implemented in a number of countries. The alternative scenario was carried out using a disaggregated model system for developing countries (for a description, see “A Scenario and Forecast Adjustment Model for Developing Countries,” by Charles Adams and Claire Hughes Adams in Staff Studies for the World Economic Outlook (Washington: International Monetary Fund, August 1989)).

    Based on the developing country scenario and adjustment models for the 50 countries with Fund programs at the end of 1991.

    Annex IV The Medium-Term Fiscal Strategy Revisited

    This annex takes stock of the progress so far in achieving the objectives of the medium-term fiscal strategy in the seven major industrial countries. It examines the extent of consolidation efforts during the 1980s and discusses the slippages and setbacks that occurred in the period 1989-91, including the impact of the cyclical slowdown and the budgetary consequences of German unification. Against this background, it assesses the task that lies ahead in getting fiscal adjustment back on track.

    The Emergence of Large Deficits and Initial Consolidation Efforts

    In the 1970s the size of the government sector expanded rapidly in all of the major industrial countries (Chart 22). Expenditures grew faster than revenues in every country except the United States, and the deterioration of fiscal balances was widespread (Chart 23).1 The major source of expenditure growth was social security transfers, although increases in interest payments and subsidies were also important (Table 18).2

    Chart 22.Major Industrial Countries: General Government Expenditure

    (In percent of GDP)1

    1GNP for west Germany and Japan.

    Chart 23.Major Industrial Countries: Contributions to General Government Fiscal Consolidation1

    (In percent of GDP)2

    1The height of the bars shows the contribution made by the change in the revenue or expenditure ratio to the change in the fiscal balance ratio. For example, in 1971-80, for the major industrial countries as a group, the revenue ratio rose by over 3 percent of GDP and contributed toward a rise in the fiscal balance by the same amount; however, the rise in the expenditure ratio was greater (over 4 percent) and this negative expenditure contribution more than offset the positive revenue contribution, resulting in a net decline in the fiscal balance ratio of over 1 percent of GDP. Data are on a national income accounts basis; see footnote 1 to Table 18 for the source of these data.

    2GNP for Germany and Japan.

    3Data through 1990 apply to west Germany only.

    Table 18.Major Industrial Countries: Contributions to General Government Fiscal Consolidation1(In percent of GDP/GNP)
    United StatesJapanWest GermanyFranceUnited KingdomItalyCanadaMajor Industrial Countries
    71-8081-9071-8081-9071-8081-9071-8081-9071-8081-9071-8081-9071-8081-9071-8081-90
    Revenue
    Total Revenue1.70.05.93.65.3-1.97.41.51.62.63.77.51.22.93.40.4
    Direct taxes1.6-0.62.01.91.4-1.11.80.4-0.5-0.14.33.30.42.71.00.4
    By households1.9-0.31.70.51.1-1.11.6-0.1-0.2-0.14.22.2-0.13.81.00.0
    By business-0.3-0.30.41.40.30.00.20.5-0.3-0.10.21.10.5-1.20.00.4
    Indirect taxes-1.5-0.30.30.5-0.1-0.40.0-0.40.8-2.3-1.42.2-1.80.0-0.7-0.4
    Current transfers0.00.10.40.10.1-0.3-0.30.6-0.6-0.3
    Contributions for social insurance1.70.92.70.43.70.65.21.51.10.11.01.40.71.02.60.2
    Property and entrepreneurial0.90.7-0.10.00.40.30.3-1.8-0.00.12.5-0.4
    Expenditure
    Total expenditure1.21.411.2-2.58.2-2.47.91.26.4-5.25.55.84.05.24.6-0.6
    Government consumption-1.10.71.8-1.03.3-2.43.2-0.83.31.91.11.10.40.30.00.9
    Wage consumption-0.80.11.6-1.01.6-1.52.8-0.91.7-1.5-0.10.3-0.2-0.40.0-0.8
    Nonwage consumption-0.30.60.20.01.7-0.90.50.11.6-0.4-0.10.80.60.7-0.1-0.1
    Subsidies0.0-0.20.4-0.70.40.10.4-0.60.8-1.40.8-0.71.8-1.00.4-0.5
    Interest paid0.20.82.50.21.00.30.51.11.1-1.63.53.41.73.11.00.8
    Social security2.70.35.30.13.7-2.24.41.22.7-1.01.52.01.32.83.2-0.2
    Transfer payments0.10.10.82.7-0.10.20.40.2-0.30.3
    Fixed investment0.50.21.1-1.1-0.9-0.9-0.40.1-2.00.40.21.20.10.10.2-0.2
    Fiscal balance0.5-1.4-5.66.6-2.71.0-0.60.3-4.71.9-2.71.1-2.8-2.3-1.41.1
    Memorandum
    Primary balance20.7-0.6-3.16.7-1.81.3-0.11.4-3.60.30.94.5-1.10.8-0.51.9

    Figures shown are changes in the revenue, expenditure, and fiscal balance ratios to GDP between the first year and the last year of the period shown. The data are for general government on a national income accounts basis derived from Organization for Economic Cooperation and Development, Economic Outlook (Paris), Vol. 50, December 1991. Investment data for the United States were provided by the U.S. Department of Commerce; when these data were added, corresponding reductions were made to nonwage consumption.

    The primary balance is defined as the financial balance net of interest payments and receipts.

    In a few countries, notably west Germany. France, and the United Kingdom, public consumption—that is, mainly public sector employment—also increased sharply, but for the seven major countries as a group, consumption outlays remained a constant proportion of GDP over the decade. Public fixed capital formation, however, fell in relation to GDP in every country except Italy, where it remained constant, and Japan, where it rose marginally. Revenue growth in the 1970s was very high, particularly in continental Europe, but the expenditure increase was even larger, leading to higher deficit ratios. The most rapidly growing source was social security contributions, followed by personal income taxes.

    During the 1970s, the industrial countries had great difficulty in adjusting to the oil shocks, and there was a substantial deterioration in their macroeconomic performance. Toward the end of the decade, it became apparent that a large part of the deterioration was of a structural, rather than a cyclical, character, implying that it could not be reversed by short-term changes in monetary and fiscal policies. In the early 1980s, this diagnosis led to a new consensus on the need for structural reforms, together with a reorientation of macroeconomic policies toward medium-term objectives, including, in the fiscal area, the objectives of increasing national saving and stabilizing or lowering public debt-GDP ratios. Also contributing to this policy shift was an increasing awareness of the costs of higher taxation and the long-term effects of continuing expansion of the public sector on private sector capital formation and on economic growth. In the early 1980s, therefore, most of the industrial countries embarked on programs of fiscal consolidation than emphasized expenditure reductions rather than tax increases.

    In the event, these plans met with varying degrees of success. Over the course of the 1980s, all of the European countries and Japan succeeded in reducing their overall government deficits in relation to GDP. In Japan, both expenditure restraint and revenue enhancement contributed to a shift in the fiscal balance of 6½ percent of GNP, resulting in a surplus of 2¾ percent of GNP by 1990.3 In west Germany and the United Kingdom, the adjustment came through expenditure restraint. The reduction in the expenditure ratio was particularly large in the United Kingdom, where it fell by 5¼ percentage points of GDP, double the decline in west Germany and Japan. Because of these efforts, the United Kingdom’s general government budget was nearly in balance in 1990.

    In France and Italy, the deficit was reduced by raising revenues faster than expenditures. The rise in the revenue ratio was particularly large in Italy—7½ percent of GDP—and it derived from all sources of revenue. In both countries, social security outlays and interest payments rose sharply during the 1980s. In Italy, with interest outlays rising by nearly 3½ percent of GDP, the observed improvement in the overall deficit of 1 percent of GDP reflected a decline in the primary budget deficit (the deficit net of interest payments and receipts) by 4½ percent of GDP.4

    In sharp contrast to the consolidation of budgetary positions in Japan and Europe, government deficits in North America deteriorated over the course of the 1980s. In both the United States and Canada, fiscal deficits rose during the recession in the first half of the decade and fell somewhat during the cyclical upswing of the second half. In both cases, however, the subsequent improvement was not sufficient to bring the overall deficit in 1990 below the level prevailing in 1981 (see Table 18).

    The pattern of the fiscal deterioration differed between the United States and Canada. In the United States, moderate spending growth, mostly in nonwage consumption and interest payments, was combined with stagnant revenues, which reflected the income tax cuts of the early 1980s, offset by increased social security taxes. In Canada, the very high growth of interest payments and social security transfers more than offset large increases in household income taxes and social security contributions.

    The movements described above mainly resulted from changes in central government finances. In most cases, the state (or provincial) and local government financial balances moved in the same direction as changes in the central government balance during the 1970s or 1980s, but the magnitude of the change was smaller: this is also usually the case in the projections through 1997. However, there were exceptions to this general trend. In the United States, the state and local governments’ balance rose by ¾ of 1 percent of GDP during the 1970s, while the federal government balance fell by ¼ of 1 percent of GDP. In west Germany during the 1980s, the federal government balance increased by ¾ of 1 percent of GNP, while the stale and local governments’ balance increased by about 1 percent of GNP, and in unified Germany in the 1990s, the central government balance is expected to improve substantially, while the state and local governments’ balance is expected to deteriorate slightly. In France, the decline in the general government balance between 1971 and 1980 was entirely due to the declining balance at the state and local level as the central government balance actually increased, and in the 1990s the central government balance is projected to increase enough to more than offset the deterioration in the state and local governments’ balance. In Italy, the improvement in the general government financial balance in the 1980s derived equally from the central government and the state and local governments.

    An important feature of the budgetary consolidation process over the past two decades has been the disproportionately large share of adjustment coming from cuts in public investment. In most of the major industrial countries, the ratio of government investment to GDP has been on a downward trend for 20 years; and in some of them, including west Germany and the United Kingdom, this ratio has been cut in half (Chart 24). Although the evidence is mixed, it is clear that at least some types of infrastructure investment will tend to raise the private sector’s productivity and the economy’s overall supply capacity. The low level of public investment over the past two decades may therefore have contributed to the slowdown in productivity growth in the industrial countries over this period. However, while the intuitive appeal of this argument is clear, there is little agreement on the quantitative importance of these links.5

    Chart 24.Major Industrial Countries: General Government Fixed Investment1

    (In percent of GDP)2

    1For the United States, data were provided by the U.S. Department of Commerce.

    2GNP for west Germany and Japan.

    In contrast to the trend in public investment, current government spending grew extremely rapidly in all of the major industrial countries during the 1970s and until the early-to-mid-1980s. However, the subsequent consolidation programs succeeded in limiting, and then reversing, the rise in current spending relative to GDP. Only in Italy and Canada, where interest payments alone pushed the current spending ratio up by over 3 percentage points of GDP during the 1980s, was this not the case. The effort to limit the growth of the public wage bill by limiting employment growth as well as wage increases was a major reason for the success in containing current spending.6

    Recent Setbacks and Prospects for a Resumption of the Consolidation Process

    In the late 1980s and early 1990s, many of the industrial countries encountered setbacks to their consolidation efforts. An important reason for this has been the cyclical slowdown, which has now affected all of the major countries. The need to finance the war in the Middle East in 1990-91 was another factor that affected several countries. In Germany, unification with the eastern part of the country has pushed the fiscal deficit to its highest level in relation to GNP since the recession in 1975. In the United States, the savings and loan crisis has put an unexpected and large burden on the federal budget for years to come. In the United Kingdom, the recent growth in expenditures has raised the budget deficit by more than can be attributed to the recession. In Italy, the general government deficit has remained at 10 percent of GDP since 1987.

    These recent reversals mean that many countries are entering the 1990s with bigger budgetary gaps to close than they faced in the early 1980s. Moreover, it may be more difficult to cut spending now because of the greater share of interest payments and the growing importance of outlays linked to entitlement programs, such as social security and health care. However, the increased scope for reducing military expenditures might facilitate the task of deficit reduction in the future. On the revenue side, it will be difficult to raise more revenue from the current tax structure without raising tax rates, because tax reforms in the 1980s already widened most tax bases. And many countries face pressures to lower taxes further.

    A particularly difficult task is now facing those countries that missed the opportunity to consolidate their budgetary positions during the long period of economic expansion of the 1980s, that is, the United States. Italy, and Canada. The staffs baseline scenario based on the policies currently in place—and assuming that the economic recovery will materialize as projected—shows that the general government balance in Canada will improve significantly in the 1990s (see Chart 23). By contrast, the expected improvements in the United States and Italy are very small, in the other major countries, slight improvements are projected in general government balances between 1990 and 1997.

    For some countries, the staff projections are broadly in line with the authorities’ own medium-term objectives, but for others the projected improvements fall considerably short of the authorities’ targets. To identify these gaps, it is useful to review the current situation briefly in each country. This discussion is conducted in terms of the nationally preferred definitions of the fiscal sector in each country, since the domestic policy debate—and discussions between the national authorities and the Fund staff—are conducted in terms of the national concepts.

    In the United States, the Administration’s budget for FY 1991 (prepared in January 1990) envisaged that the unified budget deficit on a current services basis (i.e., on the basis of unchanged policies) would decline from roughly $120 billion in FY 1990 to $25 billion in FY 1992, and then shift into a surplus of $110 billion in FY 1995 (Table 19). The explicit objective of the budget was to achieve a surplus in FY 1995 that would be approximately equal to the social security cash flow surplus. Thus, the medium-term goal was to achieve a balanced budget without counting on the social security surplus.

    Table 19.United States: Current Services Estimates of the Federal Budget Balance1(In billions of U.S. dollars unless otherwise noted; fiscal years)
    1990219912199219931994199519961997
    Administration
    January 1990 budget (FY 1991)
    Unified budget-121.4-64.0-26.018.362.5109.2
    Social security62.080.393.1107.4124.2137.2
    Deposit insurance2.37.3
    New GRH less deposit insurance-181.1-137.0-119.1-89.1-61.7-28.0
    (In percent of GNP)-3.2-2.3-1.8-1.3-0.8-0.4
    January 1992 budget (FY 1993) (excluding, health reform)3
    Unified budget-220.5-268.7-394.9-354.8-227.5-211.7-201.8-205.1
    Social security58.253.530.263.475.086.9101.1115.0
    Deposit insurance58.166.380.175.7-17.2-15.4-15.2-39.9
    New GRH less deposit insurance-220.6-255.9-365.0-342.5-320.6-314.0-318.1-360.0
    (In percent of GDP)-4.0-4.5-6.2-5.5-4.8-4.5-4.3-4.5
    Stall (excluding health reform)3
    Unified budget-220.5268.7-397.8-360.9-235.2-221.9-219.1-236.6
    New GRH less deposit insurance-220.6255.9-367.9-348.6-328.3-324.2-335.4-391.5
    (In percent of GDP)-4.0-4.5-6.3-5.6-5.0-4.6-4.6-5.1

    The Administration estimates of January 1992 and the staff estimates assume the full implementation of 1990 budget agreement. The staff estimates include the FY 1993 budget, but are based on differing underlying economic assumptions (with respect to economic growth, inflation, and interest rates) than those of the Administration.

    Actual outcomes for the Administration’s January 1992 estimates and the staff estimates; these were estimates in the Administration’s January 1990 budget.

    The President’s budget for FY 1993 excludes comprehensive health reform proposals. Unofficial estimates put the cost of this program at roughly $100 billion over five years but it is unclear how these expenditures will be financed.

    During 1990, the fiscal outlook deteriorated sharply for three main reasons: (1) a reassessment of the net outlays required by the official deposit insurance scheme in connection with the crisis affecting many banks and loan institutions: (2) a downward adjustment in the tax yield that can be expected from a given level of GDP and other technical factors: and (3) a significantly less favorable short-term economic outlook. The extent of the fiscal deterioration prompted a series of negotiations between the Administration and Congress that culminated in November 1990 in a new multiyear deficit reduction plan—the Omnibus Budget Reconciliation Act of 1990.7

    Since the new budget law was put in place, the Administration has submitted two new budgets, in February 1991 and January 1992. Both budgets assume that the November 1990 budget law, including its discretionary spending caps and pay-as-you-go requirements, will be fully implemented. Nonetheless, in both budgets the projected deficits have grown, mainly on account of the same three reasons that were important in 1990 (see “new GRH less deposit insurance” line in Table 19).8 The projected rise in the deficit in the medium term, as well as the worsening of the fiscal outlook since last year, reflects in large part a less optimistic view of the economy’s growth potential, continued strong growth in certain categories of spending (e.g., for medical care), and unexplained downward shifts in revenues relative to income. These are clearly long-term problems to which fiscal policy needs to respond.

    The current budget (on the “new GRH less deposit insurance” basis) projects the FY 1992 deficit at $365 billion (6.2 percent of GDP), and it envisages a reduction in the deficit to $314 billion (4.5 percent of GDP) in FY 1995.9 The staff, using somewhat different macroeconomic assumptions, projects a slightly higher deficit path over the medium term. Thus, the gap between the current staff projections of the budget deficit and the official medium-term objectives set out in January 1990 is now equivalent to 4¼ percent of GDP, on average, during FY 1992-95; this is 1¼ percentage points of GDP higher than projected in the October 1991 World Economic Outlook.

    In late 1991, Italy presented to the European Community’s Council of Ministers the first medium-term economic convergence program for a member state (see Annex II). The fiscal targets of this program call for a reduction in the central government borrowing requirement from an estimated 10 percent of GDP in 1991 to 5.5 percent in 1994 (Table 20). These objectives imply a shift in the primary surplus from just above zero in 1991 to 3¾ percent of GDP in 1994. The public debt-GDP ratio, which was estimated at 102 percent of GDP at the end of 1991, is expected to stabilize by the end of 1993, and then to decline slowly thereafter.

    Table 20.Italy: Fiscal Targets in Convergence Plan(In trillions of lire; ratios to GDP in parenthes)
    1991199219931994
    Official projections
    Central government borrowing requirement141.0127.8110.197.3
    (10.0)(8.4)(6.7)(5.5)
    Central government debt11,443.81,585.01,706.01,818.7
    (102.0)(104.3)(104.4)(103.6)
    Staff projections
    Central government borrowing requirement(10.7)(10.8)(10.9)(10.2)
    Memorandum
    Official primary surplus2.826.448.964.4
    (0.2)(1.7)(3.0)(3.7)
    Source: Data provided by the Italian authorities.

    Including the bonds issued for the repayment of arrears on tax refunds.

    These targets, although relatively ambitious, would not seem to fully satisfy the fiscal convergence criteria for participation in Stage III of economic and monetary union.10 Certainly, the achievement of the 1994 deficit target would leave the country well placed to meet the 3 percent benchmark level by 1996-98. It is unlikely, however, that the debt-GDP ratio could be reduced in the 60 percent benchmark by then, but it is possible that a falling debt ratio could be judged to be approaching the benchmark at a satisfactory pace.

    An important new element in the fiscal adjustment plan in Italy is the explicit commitment of the authorities to the nominal deficit targets, irrespective of underlying macroeconomic developments. While this commitment demonstrates the Government’s intentions, the necessary measures to achieve these targets have not yet been passed by Parliament. The measures envisaged in the proposed 1992 budget appear insufficient to achieve the budgeted large is and rely once more too heavily on temporary adjustments and on intervention affecting the borrowing requirement rather than the underlying public deficit. Moreover, although the convergence program mentions most of the areas in greatest need of reform (such as the public sector wage bill, pensions, and health expenditures), it does not identify the specific structural reform measures that the Government intends to adopt in each area. Without these structural reforms in place, the Fund staff expects shortfalls from the deficit targets to rise from 2½ percent of GDP in 1992 to 4¾ percent in 1994.

    In Canada, the federal deficit was reduced from 8½ percent of GDP in FY 1984/85 to 4½ percent of GDP in FY 1989/90, but this was not enough to arrest the upward trend in the debt-GDP ratio. In order to strengthen the process of fiscal consolidation, the February 1990 budget introduced an ambitious deficit-reduction path for FY 1990/91 and subsequent years. This plan was backed by expenditure restraint measures (the two-year Expenditure Control Plan), but their impact on the deficit was muted by the unexpected weakness of the economy and the persistence of high interest rates. By the end of 1990, when the budget for FY 1991/92 was being prepared, it was apparent that sizable departures from the deficit-reduction path were in store.

    In response, the February 1991 budget assigned the highest priority to fiscal adjustment and involved three complementary tracks: a reaffirmation of the medium-term consolidation goals combined with a strengthened framework for spending control; immediate measures to prevent an increase in the fiscal deficit in nominal terms; and action to reinforce the decline in inflation, dampen inflation expectations, and permit a lowering of interest rates, which would facilitate fiscal adjustment both directly and indirectly.

    Based on the assumption of a steady economic recovery beginning in 1991, the February 1991 budget set out a forecast for the federal deficit in nominal terms that converged to the path envisaged in the previous budget. Economic activity in 1991 turned out weaker than expected, with adverse consequences for the fiscal position. However, owing to lower-than-projected interest payments as well as discretionary measures, the FY 1991/92 deficit was contained to Can$31.4 billion (4½ percent of GDP), only slightly above target. The FY 1992/93 budget, which was presented in February 1992, sought to strengthen the economic recovery while keeping to the medium-term strategy of fiscal consolidation. The budget combined tax reductions and investment incentives with further expenditure restraints, including cuts in defense expenditure and consolidation and privatization of government agencies and corporations. The updated fiscal outlook envisaged a reduction in the deficit to 3¾ percent of GDP in FY 1992/93, and a further decline to 1 percent of GDP in FY 1995/96—roughly the same objective that was set out in the February 1990 budget (Table 21). Staff projections, based on slightly different macroeconomic assumptions, put the deficit path only marginally above the official estimates.

    Table 21.Canada: Federal Fiscal Projections
    February 1992 Budget Projections DeficitStaff Projections Deficit
    Fiscal yearsIn billions of Canadian dollarsPercent of GDPDebt as percent of GDPIn billions of Canadian dollarsPercent of GDPDebt as percent of GDP
    1991/9231.44.560.831.54.560.5
    1992/9327.53.861.528.53.961.5
    1993/9422.52.960.024.53.160.2
    1994/9514.51.757.817.12.058.5
    1995/968.50.952.111.91.356.3
    1996/975.50.652.49.21.054.1

    In Germany, the budgetary costs of unification are proving much higher than initially envisaged by the authorities. In 1991, the deficit of the territorial authorities was officially projected to rise from 1¼ percent of GNP in 1989 (in west Germany) to an estimated 5½ percent of GNP in 1991 (in all of Germany). Transfers to east Germany alone were projected to amount to 5 percent of GNP in 1991, and about two thirds of those transfers were to be directed toward consumption. The official medium-term objective was to reduce the deficit of the territorial authorities to 2½ percent of GNP by 1995 (Table 22).

    Table 22.Germany: Territorial Authorities’ Finances(In percent of GNP)
    19911992199319941995
    Official medium-term projections Budget balance-5.6-4.3-3.8-3.0-2.5
    Staff projections Budget balance-4.4-4.0-3.6-3.2-2.7

    In support of this medium-term objective, two fiscal packages were announced in early 1991. The first entailed 1¼ percent of GNP in budgetary savings at the federal level. The second package stipulated increases in various taxes amounting to ½ percent of GNP in 1991 and 1 percent of GNP in 1992. In addition to these measures, the Government proposed sizable cuts in subsidies starting in 1992, and a rise in the basic VAT rate from 1993.

    The latest information available now places the 1991 fiscal deficit at about 4½ percent of GNP, reflecting higher revenue and lower expenditure than budgeted. Given this outcome, and the current tight monetary conditions throughout Europe that are partly associated with the policy mix in Germany, there is a question of whether and to what extent the deficit targets for 1993-95 should be more ambitious. With the budgetary measures discussed above and the Federal Government’s success in restraining expenditure growth in the 1980s, it appears feasible for the federal deficit to meet the medium-term targets. However, there are uncertainties associated with the budget outlook (some expenditures in east Germany have been postponed) and with the operation of the main off-budget funds—which deal with the privatization, restructuring, or liquidation of the state property of the former German Democratic Republic (i.e., the operations of the Treuhandanstalt), the environmental cleanup in east Germany, and the provision of postal and railway services. Moreover, the territorial authorities’ deficit target will be realized only if state and local authorities also exercise strict control over their expenditures. Staff projections, incorporating both the measures already adopted and those proposed by the Government, envisage the deficit falling to 2¾ percent of GNP in 1995.

    In the United Kingdom, fiscal policy continues to be set within the framework of the Medium-Term Financial Strategy, which has as a primary objective the balancing of the budget over the course of the cycle. In this context, the authorities view cyclical variations in the public sector finances on account of the operation of the automatic stabilizers as being fully consistent with their medium-term approach. In fact, as the economy fell into recession the public sector borrowing requirement (PSBR, including privatization proceeds as revenue) rose from near zero in FY 1990/91 to an estimated deficit of 2¼ percent of GDP in FY 1991/92.

    The March 1992 budget revised upward the projected ratio of the PSBR to GDP to 4½ percent in FY 1992/93 and to 4¾ percent in FY 1993/94. These revisions reflect significant increases for spending on health, transport, and education, as well as some net reduction in taxes. On the basis of present policies, the staff projects that the PSBR would rise to 5 percent of GDP in FY 1993/94 (or, to 5¾ percent of GDP excluding privatization receipts) before declining moderately over the subsequent three years. While cyclical factors are at present contributing to the deficit, deficits of this magnitude over the medium term would reflect an increase in discretionary spending.

    In France, the steady reduction of the fiscal deficit has been one of the pillars of the Government’s medium-term strategy. The central government budget deficit was reduced from 3¼ percent of GDP in 1985 to 1½ percent of GDP in 1990. In 1991, the latest estimates are that the deficit was held to less than 2 percent of GDP, despite the substantial slowdown in economic activity. The budget for 1992 targets a deficit of 1¼ percent of GDP. The Government has no official quantitative objectives beyond this year, but staff projections foresee a slight increase in the deficit to 1½ percent of GDP by 1995.

    As noted in the discussion above, Japan implemented a massive fiscal adjustment in the 1980s, In 1987, the general government balance first shifted into surplus, and since that time the surplus has increased steadily, reaching an estimated 3 percent of GNP in 1991.11 At the time of writing, the Government had no official quantitative objectives for 1992 or beyond. The staff projects a continuing general government surplus on the order of 3-3¼ percent of GNP in the period FY 1992-95.

    Annex V Fiscal Adjustment in Developing Countries: Supplementary Material1

    This annex provides additional information on three aspects of fiscal adjustment in developing countries discussed in Chapter III: first, the trends in government expenditures and revenues during the last decade and the extent to which fiscal adjustment occurred as a result of cuts in expenditures rather than increases in revenues; second, the relationship between public sector investment and growth; and, third, the impact of fiscal adjustment on expenditures on health and education.

    Trends in Government Expenditures and Revenues

    For the aggregate of developing countries, there were significant changes in central government expenditures, revenues, and fiscal balances during the last decade, Expenditures declined from an average of 29 percent of GDP in the period 1981-85 to 27 percent in 1986-88, and to 25 percent in the last three years (Table 23 and upper panel of Chart 25). The brunt of fiscal adjustment during recent years was borne by current expenditures, with capital spending declining only marginally, although developments in the Western Hemisphere mainly accounted for this aggregate result. The expenditure declines reflected in part the debt crisis when access to foreign capital markets was restricted and, in more recent years, stabilization efforts. Revenues declined from an average of 23 percent of GDP in 1981-85 to 20 percent in 1986-88 due partly to a sharp fall in revenues of oil exporting countries as oil prices declined, but rose somewhat during the last three years following an improvement in economic conditions in several countries. As a result, the aggregate fiscal deficit for the developing countries, which had reached an average of 7 percent of GDP in the period 1986-88, fell to 4 percent of GDP in 1989-91.

    Table 23.Developing Countries: Central Government Fiscal Accounts1,2(In percent of GDP)
    1981-851986-881989-91
    Developing countries
    Revenues23.120.020.8
    Expenditures28.926.924.9
    Current18.018.616.9
    Capital10.88.38.1
    Balance-5.8-6.9-4.1
    Africa
    Revenues28.825.727.1
    Expenditures36.233.930.1
    Current18.020.720.5
    Capital18.213.29.6
    Balance-7.4-8.2-3.0
    Asia
    Revenues15.615.615.9
    Expenditures19.519.219.1
    Current9.811.511.4
    Capital9.77.77.7
    Balance-3.9-3.6-3.2
    Middle East
    Revenues35.925.727.8
    Expenditures43.336.735.1
    Current28.025.024.5
    Capital15.311.710.7
    Balance-7.4-11.1-7.3
    Western Hemisphere
    Revenues18.118.218.3
    Expenditures24.425.220.6
    Current19.821.815.5
    Capital4.63.45.0
    Balance-6.3-7.0-2.3

    Excludes Eastern Europe and the former U.S.S.R.

    Weighted averages using 1988 GDP weights. The sample consists of 98 developing countries (37 in Africa, 17 in Asia, 13 in the Middle East, and 31 in the Western Hemisphere) accounting for over 90 percent of total developing country GDP in 1988. The fiscal balances differ somewhat from those in Appendix Table A19 due to slight differences in coverage and in the weighting scheme.

    Chart 25.Developing Countries: Central Government Fiscal Accounts1

    (In percent of GDP)

    1Excludes Eastern Europe and the former U.S.S.R. Weighted averages using 1988 GDP weights.

    Both the extent of the budgetary changes and the factors underlying them varied considerably across different regions and across countries within regions. In Africa, adjustment measures during 1989-91, many taken in conjunction with Fund programs, led to a decline in the average expenditure ratio by 4 percentage points (see Chart 25). The sharp drop in capital spending mainly resulted from the declines in three countries—Algeria. Cameroon, and Gabon—owing to the lagged effects of lower oil prices during 1986-88. Within current expenditures, the share of economic services, as well as public administration and defense, was markedly lower, while the share of interest payments continued to increase. Revenues rose somewhat because of higher direct and indirect tax rates, better collection procedures, increased economic activity, and an improvement in non-oil commodity prices. The average fiscal deficit for Africa declined from over 8 percent in the period 1986-88 to 3 percent in 1989-91.

    The cross-country variability in the fiscal situation in Africa is striking. For instance, in 1988-91, ratios of government revenue to GDF varied from under 10 percent in Benin to over 51 percent in Seychelles; Cameroon’s ratio was just over 15 percent, while that of Algeria exceeded 30 percent (Table 24). These differences are due in large part to the marked variations across countries in the level of development and urbanization, the structure of production, the revenue base, as well as the efficiency of tax administration. Although expenditure ratios vary less than revenue ratios, they still range from over 56 percent in Seychelles to about 31 percent in Algeria and 21 percent in Cameroon. The fiscal imbalances and the degree of adjustment have differed considerably, with deficits declining by over 5 percentage points in Algeria, while increasing significantly in such countries as Ethiopia and Zaïre.

    Table 24.Selected Developing Economies: Central Government Fiscal Accounts, Annual Average1(In percent of GDP)
    RevenueExpenditureBalance
    Africa
    Algeria31.530.51.0
    Benin9.819.3-9.5
    Cameroon15.521.5-6.0
    Ethiopia25.342.6-17.3
    Kenya23.029.7-6.8
    Morocco23.827.9-4.1
    Nigeria18.523.2-4.7
    Seychelles50.856.4-5.6
    Tanzania21.327.8-6.5
    Asia
    Bangladesh9.416.8-7.4
    China219.722.0-2.3
    Hong Kong16.515.31.2
    India11.419.2-7.8
    Indonesia18.519.1-0.6
    Korea18.819.6-0.8
    Malaysia25.630.6-5.0
    Middle East
    Egypt329.246.4-17.2
    Iran. Islamic Republic of14.917.8-3.9
    Libya36.339.4-3.1
    Saudi Arabia41.154.4-13.3
    Syrian Arab Republic22.322.2-0.1
    Western Hemisphere
    Argentina20.627.1-6.5
    Bolivia22.224.8-2.5
    Chile28.324.73.5
    Colombia13.514.5-1.0
    Mexico16.117.6-1.5
    Nicaragua31.035.0-4.0
    Uruguay24.325.2-1.0
    Venezuela24.124.00.1

    Averages use preliminary estimates for 1990 and 1991.

    Consolidated general government.

    Consolidated general government plus public enterprise investment.

    In Asia, the average central government expenditure ratios fell marginally between 1986-88 and 1988-91, while the revenue ratio increased somewhat; the average fiscal deficit, which was 3½ percent during 1986-88, declined to 3¼ percent during the last three years. These relatively modest changes in the fiscal situation mask a considerable diversity across countries, with some, such as Indonesia and Malaysia, showing improvement, while others, such as India, showing some deterioration. In countries where the fiscal position improved, it reflected both a consolidation of expenditures and an increase in revenues due to increased domestic activity, and for oil exporting countries, an increase in the price of oil between 1989 and 1990. The deterioration in other countries was due partly to an increase in expenditures in the face of stagnant or declining revenues, and partly, as in the case of India, due to the adverse effects on economic activity of the collapse of trade during 1990-91 with the formerly centrally planned economies of Eastern Europe and the former U.S.S.R.

    The average of both the expenditure and the revenue ratios in Asia is the lowest of all developing country regions. This reflects, to some extent, the decentralized federal system in many Asian countries with lower levels of government and a large public enterprise sector, such as in India. It also indicates, however, the increasing level of economic development in the region, with a significant role played by the private sector in areas such as education and health.

    The Middle Eastern countries experienced the largest decline in the ratio of central government revenues to GDP between 1981-85 and 1986-88 (see Chart 25). This was mainly due to the fall in export earnings of fuel exporters following the decline in the world price of oil by nearly 50 percent between 1986-88. With an increase in world oil prices in the last three years, the revenue ratio recovered by 2 percentage points. In response to revenue declines, the expenditure ratio also declined sharply during 1986-88, and by a further 1½ percent during the last three years, with the cuts falling relatively more on capital rather than current spending. The average deficits declined from 11 percent in the period 1986-88 to 7 percent in 1989-91, with a marked improvement occurring in the Islamic Republic of Iran and Saudi Arabia.

    Finally, in the Western Hemisphere, the average revenue ratio was virtually constant during the last six years, while the expenditure ratio, after increasing marginally, fell by nearly 4 percentage points during 1989-91. The constancy in the average revenue ratio masks declines in some countries such as Argentina, where stabilization policies started to take hold only in 1991. On the other hand, in Mexico and Venezuela, where adjustment started earlier and considerable progress has been made in consolidating external debt, there has been an increase in the revenue ratio, as incomes recover, tax administrations are streamlined, and privatization programs are implemented.

    The decline in the expenditure ratio in the Western Hemisphere reflects a fall of nearly 6 percentage points in the current spending ratio. Capital spending during this period increased by 1½ percentage points. The decline in current spending occurred partly as a result of some easing of the burden of interest payments on external debt, which had absorbed over 40 percent of government expenditures in 1985-87 for countries such as Mexico and Brazil. However, interest payments have risen on domestic public debt, which has been growing rapidly, offsetting some of the benefit of declining external debt.2 More important, the expenditure ratio also fell because of strong adjustment measures—in many cases in conjunction with Fund programs—to consolidate government spending by reducing subsidies and transfer payments and by reining in public sector wage bills.

    As a result of these developments, budgetary deficits declined from an average of 7 percent in 1986-88 to just over 2 percent in 1989-91, the smallest deficit of any developing country region. There were particularly marked improvements in Mexico and Venezuela, where the average central government deficit during 1989-91 declined by nearly 10 and 4 percentage points, respectively. Several other countries, such as Bolivia. Costa Rica, and Ecuador, have also reduced their deficits substantially.

    As noted in Chapter III, in two thirds of the developing countries, deficits fell by an average of 6 percentage points in the period 1989-91 compared with 1986-88. For these countries, cuts in expenditure accounted for nearly three quarters of the reduction in deficits, with increases in revenue accounting for the remainder (see Table 25). There was again, however, considerable variation among regions. In the Western Hemisphere, for instance, expenditure cuts accounted for nearly 90 percent of the adjustment compared with 85 percent in Africa and 70 percent in Asia. This suggests that the decline in deficits, by and large, resulted from changes in policy rather than simply changes in other exogenous factors, such as changes in the terms of trade or domestic cyclical developments.

    Table 25.Components of Central Government Fiscal Balances: Changes from 1986-88 to 1989-911
    Proportion of Decline in Deficit Accounted for byProportion of Increase in Deficit Accounted for by
    Expenditure declinesRevenue increasesExpenditure increasesRevenue declines
    All countries0.770.230.730.27
    By region
    Africa0.840.16-0.1621.16
    Asia0.720.280.950.05
    Middle East0.620.380.740.26
    Western Hemisphere0.880.120.270.73

    This table is based on the same sample of 98 countries as Table 5 in Chapter III. There are 68 countries with declining deficits and 30 countries with increasing deficits.

    Expenditures declined.

    In countries in which the fiscal situation deteriorated, the increase in deficits was due more to expenditure increases rather than revenue declines. There were again, however, considerable variations across regions. In Asia and the Middle East, expenditure increases were largely responsible for the fiscal deterioration. In Africa and the Western Hemisphere, by contrast, most of the deterioration was due to revenue declines associated with the generally weak growth of output.

    In countries with declining deficits, an examination of the split between current and capital expenditures indicates that more than four fifths of the decline in expenditures was accounted for by cuts in current expenditures, mainly subsidies and public sector wages, rather than in capital expenditures. As noted above, in the Western Hemisphere, ratios of capital expenditure to GDP increased substantially, implying that the reduction in current expenditures was proportionately greater than the decline in total expenditures. In countries with fiscal deterioration, higher current expenditures accounted for the bulk of the increase in deficits. In Africa, even while the fiscal situation was deteriorating, capital expenditures fell in several countries; whereas in Asia and in many countries in the Western Hemisphere, there was either no increase or a small decline in capital expenditures.

    Public Investment and Growth

    To the extent that public investment has been reduced in some countries, the growth of potential output might be expected to be adversely affected. However, it is difficult to estimate this effect because public sector investment may either raise or lower private investment. Public investment that is related to the development of infrastructure—transportation and communication systems, schools, water systems, and the like—and the provision of public goods is complementary to private investment. Public investment of this type would benefit potential growth directly and, in addition, may promote private investment, raise private sector productivity, increase the demand for private output and ancillary services, and thereby further increase output growth.

    However, public sector investment can be an impediment to private capital outlays to the extent that it substitutes for or crowds out private investment projects. Crowding out can occur if public investment utilizes scarce physical and financial resources that would otherwise be available to the private sector, or if investment by public enterprises limits the scope for private sector activity. The financing of public investment—whether through taxes, issuance of debt, or inflation—can also reduce the resources available to the private sector and thus depress private investment.

    Empirical evidence on the relationship between aggregate public investment, private investment, and growth is ambiguous. Studies for some countries have found a positive relationship between public and private investment, suggesting that public investment may, on balance, be complementary to private sector investment.3 Other studies have found that aggregate public investment has either no significant effect on growth or at best a weak positive one.4 Case studies as well as cross-country analyses have, however, generally found a positive relationship between investment in infrastructure and growth5

    These studies suggest that the relationship between public and private investment and growth is complex and depends crucially on the type of public sector projects undertaken. The policy implication is that the quality of public investment is as important as, if not more important than, the amount of expenditure on such projects.

    Expenditures on Education and Health

    The importance of targeting specific types of investment is especially relevant for spending on education and health, which, in principle, has potentially large economic benefits. For example, countries in Southeast Asia, which have given high priority to investment in health and education, have a highly literate labor force with obvious payoffs for growth.

    The data in Table 26 indicate that many countries have succeeded in their fiscal adjustment efforts without cutting significantly expenditures on education and health. For the sample of 54 countries discussed in Chapter III, there did not appear to be any marked difference between countries undertaking adjustment and those not doing so. Except in the Western Hemisphere, where there was a small increase in health and education expenditures, education expenditures relative to GDP declined marginally, while health expenditures remained about the same.6

    Table 26.Developing Countries: Central Government Expenditures on Education and Health1,2(In percent of GDP)
    Countries Undertaking Fiscal AdjustmentCountries Not Undertaking Fiscal Adjustment
    1985-871988-901985-871988-90
    All countries
    Education3.83.63.63.3
    Health1.81.71.71.6
    Africa
    Education2.92.73.53.0
    Health1.61.41.31.5
    Asia
    Education4.44.13.73.7
    Health1.91.81.61.7
    Middle East
    Education4.24.03.73.2
    Health1.61.31.91.6
    Western Hemisphere
    Education3.33.53.43.3
    Health1.81.91.81.5

    Excludes Eastern Europe and the former U.S.S.R.

    Weighted averages using 1988 GDP weights. The sample of countries is the same as for Table 7 in Chapter III.

    In view of the limited resources in developing countries, the quality of health and education expenditures is obviously important. There is some evidence that the cost-efficiency of such expenditures has improved in countries that have undertaken fiscal adjustment.7 This is important since efficiency, and hence the economic benefits, can vary widely. In Africa, for example, expenditure on primary and secondary education has been found to be more cost-effective than some types of university education, in part because its benefits are distributed more equitably and are more likely to raise labor productivity. Similarly, for a given budget, expenditures on basic health services, are often likely to yield higher dividends than state-of-the-art hospital technology.

    Annex VI Exchange Rate and Financial Market Developments

    This annex examines recent developments in the financial and foreign exchange markets of the seven major industrial countries, focusing mainly on the period from the end of August 1991 through March 1992. In the latter part of 1991, the widespread failure of economic growth in the industrial countries to match expectations, and the associated downward revisions to near-term projections of demand and activity, contributed to predominantly downward movements in both short-term and long-term interest rates. In the United States, Canada, and Japan, the authorities eased monetary conditions substantially; and long-term interest rates declined in all the major industrial countries. However, monetary conditions were tightened somewhat in Germany, where inflationary pressures remained a concern, and also in several other countries participating in the exchange rate mechanism (ERM) of the European Monetary System (EMS). In early 1992, long-term interest rates rose sharply in North America owing in part, apparently, to an improvement in expectations about demand and activity. The only explicit monetary policy actions at this time were a further lowering of short-term interest rates in the United States and Japan. Otherwise, changes in interest rates between the beginning of the year and early April were generally small.

    Movements in stock market price indices over the period as a whole were mixed but moderate in most cases, reflecting the partly offsetting influences of weaker-than-expected economic activity and the preponderance of interest rate declines. In Japan, however, there was a further marked decline in equity prices to five-year lows reached in early April. The main development in foreign exchange markets between the end of August and early January was a further substantial depreciation of the U.S. dollar in terms of most other major currencies, but subsequently this was largely reversed. The moderate decline of the U.S. dollar over the period as a whole seems attributable primarily to the interest rate differentials favoring assets denominated in non-dollar currencies, and to their recent further widening at short maturities.

    Short-Term Interest Rates and Monetary Policy

    During the period August to December 1991, new indications of the sluggishness of economic recovery in the United States and Canada, and clearer signs of the slowing of growth in Japan, led to large declines in short-term interest rates in these countries as the respective authorities eased monetary conditions. In Germany, however, heightened concern about domestic inflation led the Bundesbank to raise short-term interest rates. This contributed to increases in official rates also in France and Italy and several other countries participating in the ERM. Subsequently, between January and early April 1992, the only explicit monetary policy actions were a further lowering of the Bank of Japan’s discount rate on April 1 and a further lowering of the federal funds rate in the United States on April 9. In the other major industrial countries, there was generally little change in short-term interest rates in the early months of 1992. Thus, the overall trend in short-term rates, as indicated by the average rate for the major industrial countries shown in the upper panel of Chart 26, remained predominantly downward in the latter part of 1991, but stabilized in early 1992.

    Chart 26.Major Industrial Countries: Interest Rates

    (In percent a year)

    1Three-month certificate of deposit rates for the United States and Japan; three-month treasury bill rate for Italy; rate on three-month prime corporate paper for Canada; and three-month interbank deposit rates for other countries. Monthly averages of daily observations are plotted for all countries other than Italy and Canada. Monthly averages of fortnightly treasury bill auctions are shown for Italy, and monthly averages of weekly observations for Canada.

    21987 GDP weights.

    3Yields on government bonds with residual maturities of ten years for the United States and the United Kingdom; nine-ten years for Germany; seven-ten years for France; over ten years for Canada; and two-four years for Italy. For Japan, the yield on ten-year government bonds with longest residual maturity is shown. Monthly averages of daily observations are plotted for the United States and Japan; for the other countries, they are monthly averages of weekly data.

    In the United States, short-term market interest rates declined by about 1½ percentage points over the seven months, ending the period at roughly half the levels prevailing a little more than a year earlier. The easing of monetary conditions by the Federal Reserve had resumed in early August after a three-month pause; it continued through the remainder of 1991, accelerated toward the end of the year, and extended to early April 1992. The federal funds rate was lowered in five steps in 1991 from about 5½ percent to about 4 percent, with half of this decline occurring in December. The discount rate was lowered in three steps from 5½ percent to 3½ percent, its lowest level since 1964; this included a full percentage point reduction on December 20. The Federal Reserve explained its reductions of the discount rate in terms of weak monetary expansion, abating inflationary pressures, and concerns about the sluggish pace of economic expansion. Commercial banks lowered their prime lending rates in parallel with the discount rate, from 8½ percent to 6½ percent. In mid-February, the Federal Reserve announced that reserve requirements on checking account deposits would be lowered in April, but that the objective was to improve the financial condition of banks and the supply of credit rather than to ease reserve pressures and monetary conditions. Finally, on April 9, 1992, the federal funds rate was lowered by ¼ percent of 1 percentage point to 3¾ percent, in response to a contraction in the money supply in late March and early April.

    The decline in short-term interest rates in Canada between the end of August and the end of March, at about 1¼ percentage points, was a little less than that in the United States. This followed a period somewhat longer than a year during which short-term rates in Canada had fallen by more than 5 percentage points—more than twice the concurrent decline in U.S. short-term rates.

    In Japan, the monetary authorities allowed short-term market rates to fall by almost 2½ percentage points in the seven months through March 1992, as the domestic economy slowed, inflationary pressures abated, and prices in asset markets weakened. The Bank of Japan’s official discount rate (ODR) was lowered in two steps, in November and December 1991, from 5½ percent to 4½ percent and again on April 1, 1992, to 3¾ percent. Short-term market rates in early April 1992 were about 3½ percentage points below the peaks reached in late 1990, while the ODR was 2¼ percentage points below the plateau prevailing in the ten months through June 1991.

    In Germany, in contrast with North America and Japan, there was a continuation of the series of increases in official interest rates that began in mid-1988. On December 19, 1991 the Bundesbank raised its discount rate from 7½ percent to 8 percent and the Lombard rate from 9¼ percent to 9¾ percent. This action was taken against a background of a rising rate of inflation, strong wage pressures, monetary expansion above the target range, and the increased fiscal deficit. Between the end of August and the end of March, short-term market rates in Germany rose by roughly the same as the administered official rates, remaining well below their historical peaks.

    The tightening of monetary conditions in Germany contributed to upward pressures on interest rates in other member countries of the ERM after October, in France, the authorities were earlier able to allow short-term rates to ease; in fact, following a reduction of 25 basis points in the intervention rate of the Bank of France in October 1991, market rates temporarily fell below comparable rates in Germany. This was against the background of an inflation rate lower than Germany’s since the middle of the year and increasing slack in the French labor market. In mid-November, however, downward pressure on the franc in the ERM led to a 50 basis points rise in the intervention rate; and there was a further increase of 35 basis points in late December, following the hike in German rates. At the end of March 1992, short-term market rates in France were about 80 basis points higher than seven months earlier.

    In the United Kingdom, the authorities signaled a reduction in commercial banks’ base rates in early September 1991 from 11 percent to 10½ percent, a level 4½ percentage points below the rate that had prevailed during the year prior to sterling’s entry into the ERM in October 1989. Despite the continuing weakness of the domestic economy, there was no further reduction in base rates in the following seven months. In fact, although the United Kingdom was the only country in the ERM not to raise official rates in the wake of the Bundesbank’s action in December, market rates firmed temporarily around that time as sterling weakened in the ERM, and again at the end of the period, ahead of the general elections. Thus, at the end of March short-term market rates were roughly unchanged from six months earlier.

    Following the action of the Bundesbank, in Italy the central bank’s discount rate was raised in late December 1991 from 11½ percent to 12 percent, reversing half of the reduction implemented in the preceding May. Short-term market rates also increased by about 50 basis points over the period.

    Government Bond Yields and Equity Prices

    In contrast to the divergent movements in short-term interest rates between August 1991 and March 1992, government bond yields declined in all the major industrial countries, except the United Kingdom, where they were broadly unchanged. Declines ranged from around 30 basis points in the United States and France to about 50 basis points in Germany and to about a full percentage point in Japan. Italy, and Canada. In the United States and Canada, the declines were attenuated by a firming of yields by up to 80 basis points in the last three months of the period. As the lower panel of Chart 26 shows, in most cases the declines in long-term rates in the seven months to the end of March represented a continuation of trends originating around the middle of 1990.

    Movements in short-term and long-term interest rates in the seven months to the end of March thus entailed a steepening of upward-sloping yield curves in the United States and Canada, and a normalization of the previously inverted yield curve in Japan. In contrast, in the major European countries except the United Kingdom, long-term rates declined in relation to short-term rates, so that the inverted yield curves in Germany and France, in particular, became more steeply downward-sloping, while the upward-sloping yield curve in Italy became inverted.

    These movements in long-term rates and yield curves appear to have reflected two main influences—first, downward revisions to expectations of growth and inflation, which put downward pressure on all yields, and second, the growing divergence in the stance of monetary policy between the United States, Canada, and Japan on the one hand, and the EMS countries on the other, which stemmed partly from the pressures arising from German unification. The upturn in long-term rates in the United Slates and Canada in early 1992 seems to have reflected revised expectations about short-term prospects for growth in demand following the Federal Reserve’s easing action in December 1991, although it may also have owed something to the marked deterioration in the U.S. Administration’s projections of its fiscal deficit over 1992-97 announced in late January 1992.

    Stock market price indices showed no consistent trend in any of the major countries in the seven months under review. Following a mixture of movements in the early part of the period, indices in most countries declined moderately through most of November and December as expectations of near-term growth and profits deteriorated. Most market indices subsequently recovered through early March—with the easing action of the Federal Reserve in December appearing to provide a catalyst for an upturn in prices—before weakening somewhat over the following month. The main exception to this pattern was the market in Japan, where prices fell more consistently after fate October, apparently partly on account of domestic political difficulties; in early April, the Nikkei index was at its lowest level in five years, 53 percent below its peak at the end of 1989. Over the period between the end of August and the end of March, stock market indices rose by about 9 percent in France. 6 percent in the United States (reaching record levels on a number of occasions through February), and by 2 percent in Germany. Meanwhile, prices declined by about 3 percent in Canada, 8 percent in the United Kingdom, nearly 10 percent in Italy, and by 13 percent in Japan.

    Exchange Rates

    The main development in foreign exchange markets in the first four months of the period was a further general depreciation of the U.S. dollar in terms of all other major currencies except the Canadian dollar; but this was largely reversed in early 1992. Over the seven months, the U.S. dollar declined by 6 percent against the deutsche mark and the French franc, by 5 percent against the Italian lira, and by 3 percent against the pound sterling and the Japanese yen. These declines were partly offset by an appreciation of 4 percent in terms of the Canadian dollar, so that the nominal effective value of the U.S. dollar fell by 2 percent, to a level 5 percent below the peak reached in early July 1991 but 9 percent above the historic low point reached in the preceding February (Chart 27).

    Chart 27.Major Industrial Countries: Monthly Average Nominal and Real Effective Exchange Rates

    (Indices, 1980 = 100; logarithmic scale)

    1Defined in terms of relative normalized unit labor costs in manufacturing and constructed using trade weights based on 1980 trade data (series reu in International Financial Statistics). Data for October 1991 through March 1992 are estimated on the basis of preliminary information.

    2Constructed using same weights as real effective exchange rate indices (series neu in International Financial Statistics).

    Factors that appear to have contributed to the weakness of the U.S. dollar during the period as a whole include movements in interest rate differentials, developments in external imbalances, and perceptions of policies toward exchange rate developments in the major industrial countries.

    First, as described earlier, changes in short-term interest rate differentials in the period under review were markedly unfavorable to U.S. dollar-denominated assets relative to assets denominated in all major European currencies (Chart 28). Moreover, as a result of the major shifts in relative interest rates that began in early 1989, short-term interest rates in the United States have, since the latter part of 1990, been the lowest among all the major industrial countries, while at longer maturities only Japan has had lower interest rates than the United States in this period. These interest differentials may over time have had an increasingly persuasive effect on investors inclined not to take a view about future exchange rate movements, thereby depressing the demand for dollar-denominated assets. This is quite apart from the effects of the changes in interest differentials that occurred during the period under review.

    Chart 28.Bilateral Exchange Rates and Interest Differentials vis-à-vis the U.S. Dollar1

    1Interest differentials shown are U.S. interest rates minus domestic interest rates in percent a year. The interest rates are the same as those used in Chart 26. Exchange rates are drawn on logarithmic scales and are defined in terms of national currency units per U.S. dollar, except for the United Kingdom, where it is defined as U.S. dollars per pound sterling. The charts show monthly averages of daily data.

    Second, with regard to external imbalances, the renewed widening of Japan’s current account surplus in 1991 attracted growing attention and comment during the period. It may have contributed to the appreciation of the yen, which occurred in spite of the relatively large declines in both short-term and long-term interest rates in Japan referred to earlier.

    Finally, the dollar’s continued general weakness may also have owed something to reported official intervention in foreign exchange markets during the period, even though this was infrequent, and to associated market perceptions of policy toward movements in the dollar’s value. Thus when there were significant upward movements in the dollar, they were in most cases met fairly quickly by reported official intervention in foreign exchange markets, whereas downward pressure on the dollar appeared to meet no official resistance. Three times during the period, concerted intervention was reported in support of non-dollar currencies—on August 19, at the time of the attempted coup in the former U.S.S.R.; on January 17, following a sharp appreciation of the U.S. dollar; and in mid-February, when the U.S. dollar was subject to renewed upward pressure.1 In contrast, no concerted intervention was reported outside the EMS when the dollar was declining.2 Market perceptions of relatively little official concern about moderate dollar depreciation may also have been encouraged by the interest rate adjustments that occurred during the period, and by the communiqués issued by the finance ministers and governors of the Group of Seven countries after their meetings in Bangkok on October 12, 1991 and in New York on January 25, 1992.3

    The partial recovery of the U.S. dollar in early 1992 seems attributable mainly to more confident expectations of a stronger U.S. economic recovery and the associated rise in long-term interest rates referred to earlier. In the EMS, tension in both the narrow and the wide band of the ERM increased through the latter part of 1991, on account of upward pressure on the deutsche mark and the Spanish peseta, downward pressure on sterling, and the continuing weakness of the French franc (Chart 29). The main contributory factor seems to have been the increasingly divergent monetary policy stances in the United States and Germany, stemming partly from the pressures arising from German unification, which put upward pressure on the mark within the ERM. The tensions were absorbed partly by the coordinated interest rate adjustments referred to earlier and partly by intervention, and they eased somewhat in early 1992 as the dollar strengthened.

    Chart 29.European Monetary System: Positions of Selected Currencies in the Wide Band1

    1Weekly averages of daily data. For any pair of currencies shown in the chart, the vertical distance between them measures the percentage deviation of their bilateral exchange rate from their bilateral central rate.

    Annex VII Commodity Markets and Prices

    In the first section of this annex, recent developments in the world oil market, including movements in oil prices, are reviewed and prospective developments in oil output, demand, and prices are summarized. In the second section, recent movements in non-fuel commodity prices are examined and prospects for 1992 and 1993 are assessed.

    Oil Market Developments

    Following the developments in the Middle East during the second half of 1990 and early 1991, the world oil market has been relatively calm during the past year. The monthly average petroleum spot price (APSP), which had risen sharply from about $16 a barrel in July 1990 to a peak of more than $33 a barrel in October, fell to about $17 a barrel in February 1991 and remained in the range of $17-18 a barrel through August 1991 (Chart 30).1 The price then rose to about $20.50 a barrel in October 1991, due in part to concerns over the supplies from the former U.S.S.R., but declined in the following months to about $16.50 in January 1992. On an annual average basis, the APSP fell by about 17 percent in 1991 to $18.31 a barrel. In real terms, the price declined by about 18½ percent, more than offsetting the gain in 1990.

    Chart 30.World Crude Oil Price1

    (In U.S. dollars a barrel)

    Sources: Petroleum Market Intelligence (New York), other oil industry sources, and staff estimates.

    1Data from 1984 are the unweighted average spot market price of Brent, Dubai, and Alaska North Slope crude oils representing light, medium, and heavier crude oils, respectively, in three different regions. Estimated average prices for earlier years are intended to be comparable with these data.

    2The deflator used is the index of the export price of manufactures of the industrial countries.

    3The OPEC reference price is based on the unweighted average prices of seven crude oils. It was raised from $18 a barrel to $21 a barrel on July 27, 1990.

    Continued weak demand and adequate supplies led to the subdued state of the oil market during the past year. World oil consumption increased only marginally in 1991 because of the recession in major industrial countries, the fall in economic activity in the former U.S.S.R. and Eastern Europe, and some slowdown in the growth of oil use in other developing countries. Non-OPEC supplies continued to decline in 1991, with a large drop of about 10 percent in oil production in the former U.S.S.R. (Chart 31). However, total OPEC production increased production was running at a rate of more than 24 million barrels a day (mbd), or close to available capacity. World oil inventories continued to increase in 1991 and remained at comfortable levels at year end.

    Chart 31.World Oil Production

    (In millions of barrels a day)

    Sources: Oil industry publications, national authorities, and staff estimates.

    Note: The lines in the upper panel depict cumulative data.

    The world oil market is expected to remain relatively weak in the immediate future. While demand is projected to recover in the industrial countries and continue to expand in most developing countries, a further decline in the use of oil in the republics of the former U.S.S.R. and in Eastern Europe is expected to hold the growth in world consumption to less than 1 percent in 1992. On the supply side, non-OPEC production is likely to continue to decline with a further fall in the output of Russia, albeit at a slower pace than in 1991, partly offset by production gains in other countries. On the basis of these projections and an expected moderate rise in inventories, world demand for OPEC crude oil is expected to increase by approximately 1 mbd in 1992. Production capacities should be more than adequate in view of the ongoing programs to expand capacity in some major OPEC countries, the rapid restoration of production in Kuwait, and the possibility that Iraq will re-enter the market during the course of the year.

    The evolution of oil prices during the period immediately ahead will depend mainly on the ability of OPEC members to restrain output in a concerted manner. Although an agreement on new output quotas was reached in February 1992—the quotas had been suspended since the invasion of Kuwait in August 1990—the price of oil could come under intermittent downward pressure during 1992 if production is not restrained sufficiently.

    World oil consumption is expected to increase at only a moderate pace (about 1½ percent per annum) in the medium term in view of anticipated further gains in energy efficiency and competition from non-oil forms of energy. Total non-OPEC supplies may decline somewhat further in 1993-95 but could level off or possibly recover in subsequent years. An important factor will be developments in Russia, where there is considerable potential for a reversal of the recent decline in oil output when economic conditions become more stable. Further capacity increases in a few OPEC countries, particularly those in the Middle East with large reserves, should contribute to relatively ample supplies in the next few years.

    In this report, the staff is assuming—on the basis of the pattern of futures prices prevailing in mid-December 1991—that the annual average price of oil will decline by 8½ percent in 1992 (to $16.76 a barrel) and increase by 2½ percent in 1993. In real terms, that is, when deflated by the export unit value of manufactures, the price would decline by about 12 percent in 1992 and by about ½ of 1 percentage point in 1993. For the period 1994-97, the staff has maintained the technical assumption that oil prices will remain unchanged in real terms, implying an increase of 3 percent a year in the nominal (U.S. dollar) price.

    Non-Fuel Commodity Prices

    The continued slowdown in world economic growth contributed to further declines in nominal and real non-fuel commodity prices during 1991, particularly in the prices of metals. The decline in commodity prices thereby contributed to the moderation in consumer price inflation (Chart 32). After falling by 8 percent in 1990, the average world price of non-fuel commodities, in U.S. dollar terms, fell 5 percent in 1991, mainly reflecting lower prices for metals and minerals (12 percent), tropical beverages (7 percent), and agricultural raw materials (3 percent). Prices of food commodities on average changed very little. Slightly higher prices for vegetable oils and protein meals, meat, and bananas were more than offset by lower average prices for sugar and cereals. Wheat prices strengthened in the latter months of 1991, however, mainly in response to a decline in U.S. supplies and large actual and anticipated wheat purchases by the former U.S.S.R. Prices of metals fell sharply for the second consecutive year, as weak demand in the major industrial countries, high exports of metals from the former U.S.S.R., and increased production elsewhere led to higher metal inventories.

    Chart 32.Major Industrial Countries: Inflation Indicators

    1Three-month centered moving average of 12-month inflation rates. Consumer prices are measured in local currencies and are averaged using GDP weights. The commodity price index is an export-weighted average of 36 prices denominated in SDRs, including prices of oil and gold.

    2Non-fuel commodity prices deflated by the export price of manufactures of the industrial countries.

    Coffee prices were under downward pressure owing to continued high levels of producer stocks, despite the transfer of stocks from producing to consuming countries following the suspension of quotas under the International Coffee Agreement in July 1989; ample consumer stocks; and limited consumption growth, partly because of reduced consumption in the former U.S.S.R. Average cocoa prices fell to their lowest level since 1973, although prices advanced during the second half of the year in response to forecasts that in 1991/92 world cocoa consumption would exceed production for the first time since 1983/84. Prices of wool declined sharply in the face of abundant supplies and the suspension of Australia’s wool floor price support program in February 1991. Prices of cotton also fell, because of a large increase in cotton production, strong price competition among exporting countries, and weak demand.

    In 1992 the average world price for non-fuel primary commodities is expected to increase slightly, by 1 percent in U.S. dollar terms. Any improvement in the prices of metals from the low levels recorded in the final months of 1991 is expected to be limited. Metal prices will be positively influenced by the expected strengthening of economic growth in the industrial countries and the cutbacks in metal production prompted by the recent price declines. However, inventories remain high and supplies of metals are expected to be enhanced by new capacity coming on stream and by continued metal exports from the former U.S.S.R. Prices for food commodities are expected to average slightly higher in 1992 than in 1991, mainly reflecting higher average prices for wheat and coarse grains. In 1993, the prices of all major commodity groups are projected to strengthen, on the assumption of a firming of economic growth and some adjustment in supplies. The recent trends in commodity prices and prospects for 1992 and 1993 do not indicate any immediate risk of a worldwide increase of inflationary pressures.

    Annex VIII The Accuracy of World Economic Outlook Projections for the Major Industrial Countries

    This annex examines the accuracy of the projections of output growth and inflation in the World Economic Outlook for the group of seven major industrial countries over the 1971-91 period and during each of the business cycles in this period. The analysis includes the 1986-91 period and thus extends the sample beyond the 1971-86 period covered by Artis.1 This extension permits a comparison of the World Economic Outlook forecast record during 1990-91 with that of previous recessions.

    In analyzing the accuracy of the World Economic Outlook projections, it is important to recall that they are conditional on a number of assumptions about economic policies, exchange rates, commodity prices, and so on. The assessment presented below, however, makes no attempt to assign any part of the projection error to changes in policies or other assumptions; such an analysis is beyond the scope of the present exercise. It should also be noted that although the projections are based on a consistent set of assumptions, they are the outcome of a decentralized procedure, in which country specialists in the area departments are responsible for the individual country projections. For any country, the projections reflect the best judgment of the country specialists, supplemented to varying degrees by the explicit use of formal econometric techniques and models.

    The evaluation of the accuracy of World Economic Outlook projections is based on the properties of the forecast error, defined as the difference between the realization and the projection. A forecast is said to be accurate if it is unbiased and efficient. A forecast is unbiased if its average error is zero,2 and is efficient if it reflects all the information that is available at the time the forecast is made. Of the two characteristics, unbiasedness is generally regarded as more important because it implies that, on average, forecasts are identical to outturns.

    Forecast efficiency implies that the forecast error is not related to information available at the time the projections were made. This condition can be tested by measuring the statistical significance of the comovement between the forecast error and the forecast itself (called the β test below), and the comovement between the current period’s forecast error and previous period’s forecast error (called the ρ test below). If both β and ρ are not statistically different from zero, then a forecast is said to be efficient.3 Finally, for comparison with Artis’ results, the Theil inequality statistic is used to compare the projections with those of a random walk—that is, the projection for the next period is the current period’s realization.4

    The data are from the published versions of the World Economic Outlook and from the earlier unpublished documents. Two broadly homogeneous sets of projections are considered: current year forecasts made in the spring of the same year; and year ahead forecasts made in the fall for the following year. For the current year forecasts, the realization is taken to be the figure reported in the World Economic Outlook published in the following spring; and for the year ahead forecasts, the realization is the estimate published two years later.

    The Overall Period, 1971-91

    Tables 27 and 28 present the results for each of the seven major industrial countries, for the GDP-weighted average of the seven countries, and for the pooled projections for the seven countries.5 The top panels of Tables 27 and 28 indicate that the current year forecast errors of output growth (real GDP/GNP) and inflation (GDP/GNP deflator) are all small and not significantly different from zero.6 In addition, the current year growth and inflation forecasts are efficient, except for growth projections for Canada, the pooled growth projections, and inflation projections for the United Kingdom.

    Table 27.Forecast Error Statistics for Output Growth, 1971-911(In percent)
    United StatesJapanWest GermanyFranceItalyUnited KingdomCanadaSeven Major Industrial Countries
    AveragePooled
    (Current year forecast)
    Average growth2.54.82.42.62.21.02.92.92.7
    AFE2-0.1-0.3-0.1-0.1-0.10.1-0.1-0.1
    RMSE30.91.41.41.11.41.12.10.71.4
    Theil statistic40.30.40.50.50.40.50.70.30.5
    β5**
    ρ6
    (Year ahead forecast)
    Average growth2.64.82.42.72.31.72.92.92.8
    AFE2-0.4-0.5-0.5-0.4-0.4-0.6-0.5-0.4-0.5*
    RMSE31.83.01.91.42.31.91.51.52.1
    Theil statistic40.50.90.70.70.70.80.60.50.7
    β5**
    ρ6

    The number of observations for the individual country tests is 21, except for the estimates of ρ, which is 20. In the pooled tests there are 147 observations, but 140 for estimation of ρ.

    Average forecast error is defined as the realization less the forecast; * indicates the error is statistically significantly different from zero at the 5 percent level of significance.

    Root mean squared error.

    Theil inequality statistic, defined as the ratio of the RMSE of the World Economic Outlook forecast to the RMSE of the random walk (last period realization) forecast. A value less than one indicates the World Economic Outlook forecast is better; a value greater than one implies the random walk forecast is better.

    β is the estimated coefficent from a least squares regression of the forecast error on the forecast. An * indicates that the estimated coefficient is statistically significantly different from zero at the 5 percent level of significance, and hence that the error is correlated with the forecast.

    ρ is the estimated coefficient from a least squares estimate of the current period forecast error on the previous last period error; * indicates the estimated coefficient is statistically significantly different from zero at the 5 percent level of significance.

    Table 28.Forecast Error Statistics for Inflation, 1971-911(In percent)
    United StatesJapanWest GermanyFranceItalyUnited KingdomCanadaSeven Major Industrial Countries
    AveragePooled
    (Current year forecast)
    Average inflation5.54.24.27.412.19.96.62.97.1
    AFE-0.50.30.60.50.30.2
    RMSE6.62.10.81.21.72.01.40.61.5
    Theil statistic0.30.50.50.70.60.40.60.40.5
    β
    ρ*
    (Year ahead forecast)
    Average inflation5.64.14.21.112.010.06.66.07.2
    AFE0.2-0.30.20.71.11.4*0.6-0.20.5*
    RMSE1.43.30.91.62.92.92.31.42.2
    Theil statistic0.70.80.60.81.00.50.90.80.7
    β
    ρ***

    See notes to Table 27.

    As one would expect, the current year projections are more accurate than the year ahead projections, which are nonetheless unbiased when evaluated on an individual country basis, with the exception of the inflation projections for the United Kingdom. It is noteworthy that for the pooled sample, year ahead forecasts of growth in 1971-91 overestimated actual growth by ½ of 1 percentage point, while the year ahead forecasts of inflation underestimated actual inflation by the same magnitude. By comparison, Artis found that the average output and inflation forecast errors for 1973-85 were about ¾ of 1 percentage point. The updated results therefore suggest that the bias in the World Economic Outlook’s forecasts was reduced after 1985. For the pooled projections, the results show that the World Economic Outlook’s year ahead forecast of inflation and both current year and year ahead forecasts of output growth are inefficient.7

    The Theil statistics indicate that World Economic Outlook projections are superior to random walk forecasts. Not surprisingly, 35 out of 36 statistics are below unity.8 Theil statistics for the pooled projections show that the root mean squared error (RMSE) of the current year projections for growth and inflation are about half those of the random walk projections, while the year ahead projections are about 30 percent better than those of a random walk.

    Comparison of Business Cycles and Recession Years

    Charts 33 and 34 show the pooled growth and inflation forecast errors for the seven major industrial countries during the 1971-91 period. A positive error indicates that the actual was higher than projected, and vice versa. During 1971-82, the World Economic Outlook generally overestimated growth and underestimated inflation (Tables 29 and 30).9 By comparison, in 1983-91, only output growth in the current year was slightly underestimated, while the year ahead projection of growth and both current year and year ahead projections of inflation showed large reductions in the average error (both absolutely and relative to average growth and inflation) and were unbiased (their forecast errors were not significantly different from zero). This may suggest that the accuracy of the World Economic Outlook forecasts improved after 1982. This improvement may partly reflect a more stable economic environment in the 1980s compared with the turbulent decade of the 1970s with its repeated supply and demand shocks and high inflation.

    Chart 33.Forecast Errors in World Economic Outlook Projections for Output Growth1

    (In percent)

    1Forecast error—defined as realized minus projected—of pooled projections for the seven major industrial countries. Each year consists of seven forecast errors, one for each country. The shaded areas indicate years in which the United States was in recession for two or more quarters, as defined by the NBER (cf. Chart 1).

    Chart 34.Forecast Errors in World Economic Outlook Projections for Inflation1

    (In percent)

    1Forecast error—defined as realized minus projected—of pooled projections for the seven major industrial countries. Each year consists of seven forecast errors, one for each country. The shaded areas indicate years in which the United States was in recession for two or more quarters, as defined by the NBER (cf. Chart 1).

    Table 29.Pooled Forecast Error Statistics for Output Growth over the Business Cycles1(In percent)
    197419801982199019911971-821983-911986-91
    (Current year forecast)
    Average growth1.11.3-0.41.50.92.62.92.8
    AFE-1.1*0.2-1.5*-0.2-0.2-0.4*0.3*0.3*
    RMSE1.80.62.10.80.71.71.01.0
    Theil statistic0.30.30.60.60.40.40.50.7
    β*
    ρ****
    (Year ahead forecast)
    Average growth0.91.4-0.32.50.92.63.02.8
    AFE-4.0*-1.1-2.3*-0.5-1.5*-0.9*0.10.1
    RMSE4.91.42.81.32.01.41.41.4
    Theil statistic0.70.60.90.91.20.70.71.1
    β*
    ρ*****

    The number of observations for individual years is seven; the number of observations for the longer time periods is seven times the number of years. The statistics are explained in the notes to Table 27.

    Table 30.Pooled Forecast Error Statistics for Inflation over the Business Cycles1(In percent)
    197419801982199019911971-821983-911986-91
    (Current year forecast)
    Average inflation12.811.28.74.24.29.04.03.9
    AFE1.0-0.2-0.50.2-0.10.4*-0.10.1
    RMSE3.21.91.10.70.71.70.70.6
    Theil statistic0.60.70.50.71.20.40.50.6
    β*
    ρ*
    (Year ahead forecast)
    Average inflation13.211.28.74.24.29.14.03.9
    AFE5.3*1.6-0.1*0.41.2*-0.30.2
    RMSE5.93.61.11.01.02.81.31.0
    Theil statistic1.11.30.51.12.20.70.91.0
    β**
    ρ*****

    The number of observations for individual years is seven; the number of observations for the longer time periods is seven times the number of years. The statistics are explained in the notes to Table 27.

    In 1986-91, the year ahead projection of growth and both current year and year ahead projections of inflation were unbiased. However, the pooled projections underestimated growth in the current year by about⅓ of 1 percentage point. Based on either the β or ρ statistics, the pooled projections for 1986-91 were inefficient, although the Theil statistics indicate that they were generally superior to random walk forecasts. Moreover, the root mean squared errors of the World Economic Outlook and the random walk projections for 1983-91 and 1986-91 were about half the root mean squared errors in 1971-82, except for the year ahead projections of growth.

    In the current recession, the World Economic Outlook projections have been reasonably accurate, and in general they compare favorably with the forecasting record in past recessions. All of the growth and inflation projections in 1990 and 1991 were unbiased, with average projection errors not significantly different from zero, except for the year ahead projection for growth in 1991, which was overstated by a large margin. This error reflects the difficulty of predicting major turning points in the strength of economic activity. However, even this projection was better than the comparable estimates in the 1974 and 1982 recessions. Moreover, for current year growth and year ahead inflation, the unbiasedness of the 1991 projection was also a significant improvement over the projections for the 1974 and 1982 recessions. In general, the forecast errors are of broadly similar orders of magnitude for the current and the 1980 recessions, on the one hand, and the 1974 and 1982 recessions, on the other. This suggests that forecast errors may be related to the depth of the recession—with larger errors associated with the more severe recessions.

    In summary, the accuracy of the World Economic Outlook projections for output growth and inflation improved after 1985, the last year fully analyzed in the earlier study by Artis. This improvement may partly reflect a more stable environment in the 1980s compared with the more volatile 1970s. In the current recession, the World Economic Outlook projection errors were lower than in the two previous cyclical downturns, and the projections were generally unbiased, which is a distinct improvement over the forecasts for 1974 and 1982. Possible reasons for this difference are that supply shocks did not play a central role in the current recession and that the current recession has been relatively shallow compared with the other two. Nevertheless, the World Economic Outlook failed to fully anticipate the current downturn. Thus, an improved ability to foresee major turning points in economic activity remains a central goal of the World Economic Outlook projection exercise.

    Statistical Appendix

    Assumptions

    The statistical tables in this appendix have been compiled on the basis of information available on April 10, 1992. The estimates and projections for 1992 and 1993. as well as those for the medium-term scenario for 1994–97, are based on a number of assumptions and working hypotheses:

    a. Real effective exchange rates are assumed to remain constant at their average level during March 1–13, 1992, except for the bilateral exchange rates among the ERM currencies, which are assumed to remain constant in nominal terms.

    b. “Present” policies of national authorities will be maintained.

    c. The price of oil will average $16.68 a barrel in 1992 and $17.20 a barrel in 1993. In the medium term, the oil price is assumed to remain unchanged in real terms.

    d. Interest rates as represented by the London interbank offered rate (LIBOR) on six-month U.S. dollar deposits will average 4½ percent in 1992, 5½ percent in 1993, and gradually increase to 6¾ percent in 1997.

    Conventions

    U.S. dollar/SDR conversion rates used in this report are, for the historical period, the geometric averages of daily rates given in the Fund’s International Financial Statistics (IFS). For 1992 and 1993, the exchange rate assumptions specified above imply average U.S. dollar/ SDR conversion rates of 1.367 and 1.348, respectively. For the Eastern European countries, external transactions in nonconvertible currencies through 1990 are converted to U.S. dollars at the implicit U.S. dollar/ruble rates obtained from each of these countries’ national currency exchange rates for the U.S. dollar and for the ruble.

    Composite data for country groups shown in the World Economic Outlook are either summations or weighted averages of data for individual countries; they are calculated according to the following conventions:

    a. For data relating to the domestic economy, composites are arithmetic averages of percentage changes for individual countries weighted by averages over the preceding three years of their respective GDPs in U.S. dollars. Data expressed as ratios (e.g., in percent of GDP) are also weighted by three-year moving averages of U.S. dollar GDPs. However, unemployment rates are weighted by the size of each country’s labor force.

    b. For data relating to the external economy (balance of payments and debt) composites are sums of individual country data after conversion to U.S. dollars at the average (end-of-period for debt) exchange rates in the years indicated, except that composites of foreign trade unit values are arithmetic averages of percentage changes for individual countries weighted by U.S. dollar values of their respective exports or imports in the preceding year. Group composites of trade volumes are derived as sums of trade values (on a balance of payments basis) deflated by corresponding unit value group composites.

    The group composites in this World Economic Outlook report reflect revisions to both GDP and trade weights for a number of countries as a result of continuing staff efforts to provide more reliable and up-to-date information.

    Unless otherwise indicated, multiyear averages of growth rates are expressed as compound annual rates of change. Multiyear averages for periods beginning before 1977 for country groups including China exclude data for that country because the data are not available.

    Classification of Countries1

    Summary of the Country Classification

    Under the classification system used in the World Economic Outlook, countries are divided into two broad groups, industrial countries and developing countries. Although the Eastern European countries and all the republics that were part of the Soviet Union are therefore included among the developing countries, increased emphasis to these formerly centrally planned economies is given in the World Economic Outlook by introducing modifications to most statistical tables to allow for a division of the developing country area into two regional subgroups, one consisting of Eastern Europe and the former U.S.S.R., and the other comprising all other developing countries.

    Tables A and B provide an overview of industrial and developing countries, respectively, by standard groups in the World Economic Outlook, showing the number of countries in each group and the average shares of groups in aggregate GDP. total exports of goods and services, and total debt outstanding.

    Table AIndustrial Countries: Classification by Standard World Economic Outlook Groups and Shares of Subgroups in Aggregate GDP and Exports of Goods and Services, 1988–90
    Number of

    Countries Included

    in group
    Percentage of
    Total GDP ofTotal exports of

    goods and services of
    Industrial

    countries
    WorldIndustrial

    countries
    World
    Industrial countries23100.073.2100.073.9
    United States34.725.418.213.4
    Japan19.514.212.69.3
    Germany19.06.613.610.1
    France6.95.19.16.7
    Italy6.24.56.04.4
    United Kingdom5.94.510.17.5
    Canada3.62.64.63.4
    Other industrial countries1614.310.425.819.1
    Memorandum
    Industrial country groups
    Major industrial countries785.762.874.254.8
    European Community1233.125.753.739.8
    Industrial countries except the United States. Japan, and Germany2036.927.055.741.3
    Industrial countries except the United States2265.347.881.960.8
    Major industrial countries except the United States651.037.356.041.5
    Major European industrial countries428.020.538.828.8

    The share for 1988–90 apply to west Germany only, unified Germany’s share of world GDP would he nearly 1 percentage point larger

    Table BClassification by Standard World Economic Outlook Groups and Shares of Subgroups in Aggregate GDP, Exports of Goods and Services, and Total Debt Outstanding, 1988–90
    Number of

    Countries Included

    in group
    Percentage of
    Total GDP ofTotal exports of goods and services ofTotal debt of
    Developing

    countries
    WorldDeveloping

    countries
    WorldDeveloping

    countries
    Developing countries excluding Eastern
    Europe and former U.S.S.R.13166.717.982.720.588.8
    All developing countries138100.026.8100.024.8100.0
    By region
    Africa506.31.78.22.016.0
    Asia2926.97.243.910.925.1
    Europe1035.09.419.44.814.5
    Middle East1514.84.014.53.614.5
    Western Hemisphere3417.04.614.03.539.9
    Sub-Saharan Africa452.40.72.90.78.3
    Four newly industrializing
    Asian economies48.12.227.36.83.7
    By predominant export
    Fuel1920.35.421.35.328.4
    Non-fuel exports11979.721.478.719.571.6
    Manufactures1736.89.950.612.634.5
    Primary products556.81.86.51.617.6
    Agricultural products415.21.44.31.112.8
    Minerals141.60.42.20.54.8
    Services and private transfers333.40.93.70.97.7
    Diversified export base1432.88.817.94.411.8
    By financial criteria
    Net creditor countries813.33.617.34.34.2
    Net debtor countries13086.723.282.720.595.8
    Market borrowers2762.416.758.314.545.3
    Diversified borrowers3216.04.316.24.028.6
    Official borrowers718.32.28.22.021.9
    Countries with recent debt-servicing difficulties7628.37.626.06.558.3
    Countries without debt-servicing difficulties5458.415.756.714.137.6
    Miscellaneous groups
    Small low-income economies453.91.12.70.79.6
    Least developed countries412.30.6
    Fifteen heavily indebted countries1519.25.216.84.234.7

    The general features and compositions of groups in the World Economic Outlook classification are as follows.

    The group of industrial countries (23 countries) comprises:

    Australia
    Austria
    Belgium
    Canada
    Denmark
    Finland
    France
    Germany
    Greece
    Iceland
    Ireland
    Italy
    Japan
    Luxembourg
    Netherlands
    New Zealand
    Norway
    Portugal
    Spain
    Sweden
    Switzerland
    United Kingdom
    United States

    The seven largest countries in this group in terms of GDP—the United States, Japan, Germany. France. Italy, the United Kingdom, and Canada—are collectively referred to as the major industrial countries.

    The members of the European Community are also distinguished as a subgroup.2 They are:

    Belgium
    Denmark
    France
    Germany
    Greece
    Ireland
    Italy
    Luxembourg
    Netherlands
    Portugal
    Spain
    United Kingdom

    In 1991 and subsequent years, data for Germany refer to west Germany and the former German Democratic Republic. Prior to 1991, economic data are not available on a unified basis or in a consistent manner. In general, data on national accounts and domestic economic and financial activity through 1990 cover west Germany only, whereas data for the central government, foreign trade, and balance of payments apply to west Germany only through June 30, 1990.

    In principle, the group of developing countries (138 countries) includes all nonindustrial countries, together with a number of dependent territories for which adequate statistics are available. In practice, however, a limited number of countries, such as Cuba and Albania, are presently not included, either because their economies are not monitored by the staff or because data bases have not yet been compiled.

    The regional breakdowns of developing countries conform to the classification in the Fund’s IFS. In this classification, Egypt and the Libyan Arab Jamahiriya are classified as part of the Middle East, not Africa. The World Economic Outlook classification also includes the former Soviet republics, as part of Europe, whereas in IFS they are not included because data are not yet reported for any of them.

    Beyond the standard regional classification in IFS, a few additional groupings are included in the World Economic Outlook because of their analytical significance. These are sub-Saharan Africa,3 four newly industrializing Asian economies,4 and, as mentioned. Eastern Europe and the former U.S.S.R.5 For the latter group, a distinction is made in a number of tables between its two component subgroups, Eastern Europe and the former U.S.S.R. Pending the incorporation in the World Economic Outlook of data bases for individual former Soviet republics, all staff estimates for these are currently consolidated into a statistical construct representing the entire former U.S.S.R. This is the first time that data for the group of these new countries are shown separately in the World Economic Outlook. It should be noted that these data are based on incomplete information, and that the estimates for 1991 and the projections for 1992 are highly tentative. Prior to 1991, data for the former U.S.S.R. apply to the U.S.S.R. as then defined.

    The developing countries are also grouped according to analytical criteria: predominant export, financial criteria, and miscellaneous groups. The export criteria are based on countries export composition in 1984–86, whereas the financial criteria have been updated to reflect net creditor/debtor positions as of 1987, sources of borrowing as of the end of 1989. and experience with debt servicing during 1986–90.

    The first analytical criterion, by predominant export, distinguishes among five groups: fuel (Standard International Trade Classification—SITC 3); manufactures (SITC 5 to 8, less diamonds and gemstones); non-fuel primary products (SITC 0, 1, 2, and 4 and diamonds and gemstones): services and private transfers, and diversified export base. A further distinction is made among the exporters of non-fuel primary products on the basis of whether countries’ exports of primary commodities consist primarily of agricultural commodities (SITC 0, 1, 2 except 27, 28, and 4) or minerals (SITC 27 and 28 and diamonds and gemstones).

    The financial criteria first distinguish between net creditor and net debtor countries. Countries in the latter, much larger, group are then differentiated on the basis of two additional financial criteria: by predominant type of creditor and by recent experience with debt servicing.

    The country groups shown under the heading “miscellaneous groups” constitute the small low-income economies, the least developed countries, and 15 heavily indebted countries.

    Detailed Description of the Developing Country Classification by Analytical Group

    Countries Classified by Predominant Export

    Fuel (19 countries). Countries whose average ratio of fuel exports to total exports in 1984–86 exceeded 50 percent are assigned to this category. The group comprises:

    Angola
    Algeria
    Cameroon
    Congo
    Ecuador
    Gabon
    Indonesia
    Iran, Islamic Rep. of
    Iraq
    Kuwait
    Libyan Arab Jamahiriya
    Mexico
    Nigeria
    Oman
    Qatar
    Saudi Arabia
    Trinidad and Tobago
    United Arab Emirates
    Venezuela

    Non-fuel exports (119 countries). This category identifies countries with total exports of goods and services including a substantial share of (a) manufactures, (b) primary products, or (e) services and private transfers. However, those countries whose export structure is so diversified that they do not fall clearly into any one of these three groups are assigned to a fourth group, (d) diversified export base.

    a) Economies whose exports of manufactures accounted for over 50 percent of their total exports on average in 1984–86 are included in the group of exporters of manufactures (17 countries). This group includes:

    Bulgaria
    Brazil
    Czechoslovakia
    China
    Hong Kong
    Hungary
    India
    Israel
    Korea
    Poland
    Romania
    Singapore
    Taiwan Prov. of China
    Thailand
    Tunisia
    Turkey
    Yugoslavia

    (b) The group of exporters of primary products (55 countries) consists of those countries whose exports of agricultural and mineral primary products (SITC 0, 1, 2, and 4 and diamonds and gemstones) accounted for at least half of their total exports on average in 1984–86.6 These countries are:

    Afghanistan
    Argentina
    Bhutan
    Bolivia
    Botswana
    Burundi
    Central African Rep.
    Chad
    Chile
    Colombia
    Comoros
    Costa Rica
    Côte d’Ivoire
    Djibouti
    Dominica
    El Salvador
    Equatorial Guinea
    Gambia, The
    Ghana
    Guatemala
    Guinea
    Guinea-Bissau
    Guyana
    Honduras
    Kenya
    Lao People’s Dem. Rep.
    Liberia
    Madagascar
    Malawi
    Mali
    Mauritania
    Mauritius
    Mongolia
    Myanmar
    Namibia
    Nicaragua
    Niger
    Papua New Guinea
    Paraguay
    Peru
    Rwanda
    Sao Tome and Principe
    Solomon Islands
    Somalia
    Sri Lanka
    St. Vincent and the Grenadines
    Sudan
    Suriname
    Swaziland
    Togo
    Uganda
    Uruguay
    Viet Nam
    Zaïre
    Zambia

    Among primary products, a further distinction is made between agricultural products and minerals. The group of mineral exporters (14 countries) comprises:

    Bolivia
    Botswana
    Chile
    Guinea
    Guyana
    Liberia
    Mauritania
    Namibia
    Niger
    Peru
    Suriname
    Togo
    Zaïre
    Zambia

    All other exporters of primary products are classified as agricultural exporters (41 countries).

    (c) The exporters of services and recipients of private transfers (33 countries) are defined as those countries whose average income from services and private transfers accounted for more than half of total average export earnings in 1984–86. This group comprises:

    Antigua and Barbuda
    Aruba
    Bahamas, The
    Barbados
    Burkina Faso
    Cambodia
    Cape Verde
    Cyprus
    Dominican Rep.
    Egypt
    Ethiopia
    Fiji
    Grenada
    Jamaica
    Jordan
    Kiribati
    Lebanon
    Lesotho
    Maldives
    Malta
    Mozambique
    Nepal
    Netherlands Antilles
    Pakistan
    Panama
    Seychelles
    St. Kitts and Nevis
    St. Lucia
    Tanzania
    Tonga
    Vanuatu
    Western Samoa
    Yemen, Rep. of

    (d) Countries with a diversified export base (14 countries) are those whose export earnings in 1984–86 were not dominated by any one of the categories mentioned under (a) to (c) above. The group comprises:

    Bahrain
    Bangladesh
    Belize
    Benin
    Haiti
    Malaysia
    Morocco
    Philippines
    Senegal
    Sierra Leone
    South Africa
    Syrian Arab Rep.
    Former U.S.S.R.
    Zimbabwe

    Countries Classified by Financial Criteria

    Net creditor countries (8 countries) are defined as developing countries that were net external creditors in 1987 or that experienced substantial cumulated current account surpluses (excluding official transfers) between 1967–68 (the beginning of most balance of payments series in the World Economic Outlook data base) and 1987. The net creditor group consists of the following economies:

    Iran, Islamic Rep. of
    Kuwait
    Libyan Arab Jamahiriya
    Oman
    Qatar
    Saudi Arabia
    Taiwan Prov. of China
    United Arab Emirates

    Net debtor countries (130 countries) are disaggregated according to two criteria: (a) predominant type of creditor and (b) experience with debt servicing.

    (a) By predominant type of creditor (sources of borrowing)

    Market borrowers (27 countries) are defined as net debtor countries with more than two thirds of their total liabilities outstanding at the end of 1989 owed to commercial creditors. They comprise:

    Algeria
    Antigua and Barbuda
    Argentina
    Bahamas, The
    Brazil
    Bulgaria
    Chile
    China
    Czechoslovakia
    Hong Kong
    Hungary
    Israel
    Kiribati
    Korea, Rep. of
    Malaysia
    Mexico
    Panama
    Papua New Guinea
    Peru
    Romania
    Singapore
    Suriname
    Thailand
    Trinidad and Tobago
    Uruguay
    Former U.S.S.R.
    Venezuela

    Official borrowers (71 countries) are defined as net debtor countries with more than two thirds of their total liabilities outstanding at the end of 1989 owed to official creditors. This group comprises:

    Afghanistan
    Aruba
    Bangladesh
    Belize
    Bhutan
    Bolivia
    Botswana
    Burkina Faso
    Burundi
    Cambodia
    Cameroon
    Cape Verde
    Central African Rep.
    Chad
    Comoros
    Djibouti
    Dominica
    Dominican Rep.
    Egypt
    El Salvador
    Equatorial Guinea
    Ethiopia
    Gabon
    Gambia, The
    Ghana
    Grenada
    Guinea
    Guinea-Bissau
    Guyana
    Haiti
    Honduras
    Jamaica
    Lao People’s Dem. Rep.
    Lesotho
    Madagascar
    Malawi
    Maldives
    Mali
    Malta
    Mauritania
    Mauritius
    Mongolia
    Morocco
    Mozambique
    Myanmar
    Namibia
    Nepal
    Netherlands Antilles
    Nicaragua
    Niger
    Nigeria
    Pakistan
    Poland
    Rwanda
    Sao Tome and Principe
    Somalia
    St. Kitts-Nevis
    St. Lucia
    St. Vincent and the Grenadines
    Sudan
    Swaziland
    Tanzania
    Togo
    Tonga
    Tunisia
    Uganda
    Viet Nam
    Western Samoa
    Yemen, Rep. of
    Zaïre
    Zambia

    Diversified borrowers (32 countries) consist of those net debtor developing countries that are classified neither as market nor as official borrowers:

    Angola
    Bahrain
    Barbados
    Benin
    Colombia
    Congo
    Costa Rica
    Côte d’Ivoire
    Cyprus
    Ecuador
    Fiji
    Guatemala
    India
    Indonesia
    Iraq
    Jordan
    Kenya
    Lebanon
    Liberia
    Paraguay
    Philippines
    Senegal
    Seychelles
    Sierra Leone
    Solomon Islands
    South Africa
    Sri Lanka
    Syrian Arab Rep.
    Turkey
    Vanuatu
    Yugoslavia
    Zimbabwe

    (b) By experience with debt servicing

    Countries with recent debt-servicing difficulties (75 countries) are defined as those countries that incurred external payments arrears or entered into official or commercial bank debt-rescheduling agreements during 1986–90. Information on these developments is taken from relevant issues of the Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions.

    All other net debtor countries are classified as countries without debt-servicing difficulties (55 countries).

    Miscellaneous Groups

    The group of small low-income economies (45 countries) comprises those Fund members—excluding China and India—whose GDP per person, as estimated by the World Bank, did not exceed the equivalent of $425 in 1986. These countries are:

    Afghanistan
    Bangladesh
    Benin
    Bhutan
    Burkina Faso
    Burundi
    Cambodia
    Central African Rep.
    Chad
    Comoros
    Equatorial Guinea
    Ethiopia
    Gambia, The
    Ghana
    Guinea
    Guinea-Bissau
    Guyana7
    Haiti
    Kenya
    Lao People’s Dem. Rep.
    Lesotho
    Madagascar
    Malawi
    Maldives
    Mali
    Mauritania
    Mozambique
    Myanmar
    Nepal
    Niger
    Pakistan
    Rwanda
    Sao Tome and Principe
    Senegal
    Sierra Leone
    Somalia
    Sri Lanka
    Sudan
    Tanzania
    Togo
    Uganda
    Vanuatu
    Viet Nam
    Zaïre
    Zambia

    The countries currently classified by the United Nations as the least developed countries (41 countries) are:8

    Afghanistan
    Bangladesh
    Benin
    Bhutan
    Botswana
    Burkina Faso
    Burundi
    Cape Verde
    Central African Rep.
    Chad
    Comoros
    Djibouti
    Equatorial Guinea
    Ethiopia
    Gambia, The
    Guinea
    Guinea-Bissau
    Haiti
    Kiribati
    Lao People’s Dem. Rep.
    Lesotho
    Liberia
    Malawi
    Maldives
    Mali
    Mauritania
    Mozambique
    Myanmar
    Nepal
    Niger
    Rwanda
    Sao Tome and Principe
    Sierra Leone
    Somalia
    Sudan
    Tanzania
    Togo
    Uganda
    Vanuatu
    Western Samoa
    Yemen, Rep. of

    The group of 15 heavily indebted countries (the Baker countries) comprises those countries associated with the “Program for Sustained Growth” proposed by the Governor for the United States at the 1985 Fund-Bank Annual Meetings in Seoul. These countries are:

    Argentina
    Bolivia
    Brazil
    Chile
    Colombia
    Côte d’Ivoire
    Ecuador
    Mexico
    Morocco
    Nigeria
    Peru
    Philippines
    Uruguay
    Venezuela
    Yugoslavia

    List of Tables

    Output: Summary

    Table A1.World Output1(Annual changes, in percent)
    Average

    1974-83
    1984198519861987198819891990199119921993
    World2.74.43.43.13.44.33.32.2-0.31.43.6
    Industrial countries2.14.53.32.83.24.33.42.50.81.83.3
    United States1.86.23.22.93.13.92.51.0-0.71.63.5
    Japan3.54.35.22.64.36.24.85.24.52.23.9
    Germany21.63.11.82.21.53.73.84.51.22.03.0
    Other industrial countries2.13.03.12.93.33.93.32.00.21.72.9
    Developing countries excluding Eastern Europe and former USSR4.04.54.43.84.53.93.73.53.36.75.4
    All developing countries4.04.23.73.73.94.13.21.3-3.40.44.4
    By region
    Africa2.41.44.11.70.83.62.70.91.42.73.0
    Asia5.88.46.76.78.18.95.35.65.85.55.7
    Europe4.13.52.13.52.94.72.3-2.3-16.0-13.51.2
    Middle East3.00.61.4-1.62.4-1.74.74.20.415.07.3
    Western Hemisphere3.13.63.44.32.20.71.0-0.12.82.74.2
    Eastern Europe and former USSR4.13.32.03.32.74.72.3-2.9-16.9-14.6
    Eastern Europe3.74.63.13.41.81.3-0.8-7.1-16.6-1.03.9
    Former USSR4.32.91.63.32.95.53.0-2.0-17.0-17.5
    By analytical criteria
    Fuel exporters3.31.42.3-0.11.1-0.23.94.31.712.36.9
    Non-fuel exporters4.15.24.24.94.85.43.10.6-4.7-3.13.5
    Net creditor countries3.50.61.1-2.70.4-1.05.17.66.28.45.1
    Net debtor countries4.14.74.14.54.44.83.00.5-4.9-1.14.2
    Market borrowers4.45.44.14.74.44.92.70.2-5.8-4.73.4
    Official borrowers2.92.35.13.62.74.42.60.81.42.63.4
    Countries with recent debt-servicing difficulties2.93.13.63.82.91.71.9-1.8-2.36.25.5
    Countries without debt-servicing difficulties4.75.84.44.95.26.53.61.5-6.1-5.03.5

    Real GDP. For a few industrial countries and—historically—for several Eastern European countries and the former U.S.S.R., total output is measured by real GNP and real net material product (NMP), respectively.

    Data through 1990 apply to west Germany only.

    Output: Industrial Countries

    Table A2.Industrial Countries: Real GDP and Total Domestic Demand(Annual changes, in percent)
    AverageFourth Quarter 1
    1974-831984198519861987198819891990199119921993199119921993
    Real GDP
    United States1.86.23.22.93.13.92.51.0-0.71.63.50.32.33.6
    Japan23.54.35.22.64.36.24.85.24.52.23.93.23.23.9
    Germany2,31.63.11.82.21.53.73.84.51.22.03.0
    France2.31.31.92.52.34.23.92.81.21.82.61.42.42.7
    Italy2.82.72.62.93.14.13.02.01.01.62.40.63.81.3
    United Kingdom41.12.23.63.94.84.32.31.0-2.20.83.1-1.22.13.0
    Canada3.06.34.83.34.24.72.50.5-1.52.34.9-0.23.95.0
    Other industrial countries1.83.53.12.52.93.33.82.50.82.02.7
    All industrial countries2.14.53.32.83.24.33.42.50.81.83.3
    Of which,
    Seven countries above2.24.73.42.93.34.53.32.50.81.73.41.02.73.3
    European Community1.92.32.42.82.73.93.52.90.81.82.8
    West Germany1.63.11.82.21.53.73.84.53.11.32.20.92.81.7
    Real total domestic demand
    United States1.87.83.63.02.73.01.90.5-1.31.23.60.12.13.9
    Japan2.63.64.13.75.17.65.85.43.01.84.01.93.34.0
    Germany31.41.91.03.32.63.62.64.54.12.32.7
    France1.80.42.54.53.34.43.53.21.01.42.30.62.91.8
    Italy1.83.52.83.04.14.43.01.92.02.22.72.56.32.5
    United Kingdom0.92.52.74.65.37.83.3-0.1-3.10.92.9-1.62.32.9
    Canada3.14.75.34.25.35.23.8-0.2-0.62.54.41.42.55.3
    Other industrial countries1.52.73.63.33.43.74.62.40.72.02.7
    All industrial countries1.84.83.43.43.54.53.42.30.61.73.3
    Of which,
    Seven countries above1.95.13.33.43.54.63.22.30.61.63.40.82.93.4
    European Community1.5l.82.33.93.74.73.52.91.51.92.7
    West Germany1.41.91.03.32.63.62.64.53.01.72.11.63.01.7

    From fourth quarter of preceding year.

    GNP at market prices.

    Data through 1990 apply to west Germany only.

    Average of expenditure, income, and output estimates of GDP at market prices.

    Table A3.Industrial Countries: Components of Real GDP(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Private consumer expenditure
    United States2.44.84.43.62.83.61.91.2-0.11.83.6
    Japan3.42.73.43.44.25.24.34.22.63.03.7
    Germany11.91.61.53.43.32.71.74.72.52.12.2
    France2.61.12.43.92.93.43.23.11.52.02.5
    Italy3.32.03.03.74.24.23.62.72.62.52.6
    United Kingdom1.41.63.56.25.27.43.50.8-1.70.82.3
    Canada3.14.65.24.44.44.13.21.3-0.82.03.9
    Other industrial countries1.91.43.33.23.12.63.22.61.62.02.5
    All industrial countries2.43.23.63.73.43.92.92.51.12.13.1
    Of which,
    Seven countries above2.53.43.73.83.44.12.82.51.02.13.2
    European Community2.21.42.54.13.73.93.03.11.72.12.5
    West Germany1.9l.61.53.43.32.71.74.72.51.92.0
    Public consumption
    United States1.43.16.15.23.00.61.53.20.9-3.6-1.4
    Japan4.22.71.74.50.42.22.01.93.43.82.5
    Germany12.22.52.12.51.52.2-1.72.10.80.10.8
    France3.11.12.31.72.82.90.23.12.41.51.5
    Italy2.72.33.42.63.42.80.91.01.01.32.0
    United Kingdoml.61.01.81.20.60.93.12.41.62.4
    Canada3.01.23.21.61.74.02.93.12.40.80.8
    Other industrial countries3.31.83.43.02.91.92.72.22.11.61.5
    Alt industrial countries2.42.43.93.92.31.61.42.61.80.10.7
    Of which,
    Seven countries above2.32.54.04.12.31.51.22.61.7-0.20.6
    European Community2.61.62.12.42.62.10.52.21.61.11.5
    West Germany2.22.52.12.51.52.2-1.72.10.80.50.7
    Gross fixed capital formation
    United States0.715.95.00.4-0.54.20.4-1.6-7.62.07.9
    Japan1.14.75.34.89.611.99.39.53.50.74.1
    Germany1-0.20.33.62.14.67.08.88.44.65.1
    France-0.3-2.63.24.54.88.67.53.9-1.51.12.4
    Italy-0.23.60.62.25.06.94.63.01.51.82.7
    United Kingdom-0.48.54.02.49.613.16.8-2.4-10.3-1.63.8
    Canada3.82.19.56.210.810.45.6-3.3-3.94.56.5
    Other industrial countries-0.43.54.85.94.98.38.41.1-1.6l.83.7
    All industrial countries0.58.34.42.73.67.35.12.4-2.21.85.2
    Of which,
    Seven countries above0.79.04.32.23.47.14.52.6-2.31.85.5
    European Community-0.41.82.44.25.18.27.14.20.72.23.8
    West Germany-0.20.33.62.14.67.08.86.72.23.6
    Final domestic demand
    United Slates1.96.24.83.42.33.1l.61.1-1.10.83.3
    Japan2.83.33.83.95.47.05.75.73.02.33.7
    Germany11.51.51.33.32.73.02.15.13.42.32.6
    France2.00.32.53.63.34.43.53.31.01.72.3
    Italy2.42.42.53.24.24.53.42.52.12.22.5
    Untied Kingdom1.12.62.84.65.27.13.70.6-2.50.62.6
    Canada3.23.45.64.25.15.53.70.6-0.92.33.9
    Other industrial countries1.61.93.53.73.43.74.22.10.91.92.6
    All industrial countries2.03.83.83.63.44.33.22.70.71.63.0
    Of which,
    Seven countries above2.14.13.93.63.44.43.12.80.61.53.1
    European Community1.61.42.43.83.74.43.43.21.51.92.6
    West Germany1.51.51.33.32.73.02.15.13.11.72.1
    Stock building2
    United States-0.11.6-1.1-0.30.4-0.l0.3-0.7-0.30.40.3
    Japan-0.10.30.4-0.1-0.30.60.2-0.20.1-0.50.3
    Germany1-0.10.4-0.30.1-0.10.60.5-0.50.60.1
    France-0.2-0.10.90.10.1-0.10.1-0.3
    Italy-0.61.20.3-0.1-0.3-0.6-0.10.10.2
    United Kingdom-0.2-0.1-0.10.10.7-0.3-0.7-0.60.40.4
    Canada-0.11.3-0.30.10.1-0.20.1-0.90.30.20.6
    Other industrial countries-0.10.80.1-0.40.50.3-0.20.l0.1
    All industrial countries-0.11.0-0.4-0.20.10.10.2-0.4-0.10.10.2
    Of which,
    Seven countries above-0.11.0-0.5-0.10.20.20.2-0.5-0.10.10.3
    European Community-0.20.4-0.10.10.30.1-0.30.10.1
    West Germany-0.10.4-0.30.1-0.10.60.5-0.5
    Foreign balances2
    United Slates-0.1-1.7-0.6-0.20.30.90.60.50.60.3-0.1
    Japan0.80.81.2-1.0-0.6-1.2-0.9-0.21.40.3-0.1
    Germany10.21.10.8-1.0-1.00.11.20.1-2.7-0.20.3
    France0.41.0-0.5-1.9-1.1-0.30.3-0.40.l0.40.3
    Italy0.4-0.9-0.2-0.1-1.1-0.5-0.1-1.1-0.7-0.4
    United Kingdom0.2-0.80.9-0.5-0.6-3.6-1.11.11.2-0.20.1
    Canada0.5-0.5-0.7-0.9-0.9-1.30.8-0.10.1
    Other industrial countries0.30.5-0.2-0.9-0.6-0.6-1.10.10.4
    All industrial countries0.2-0.4-0.1-0.6-0.3-0.2-0.10.20.30.1
    Of which,
    Seven countries above0.2-0.6-0.6-0.3-0.10.20.30.1
    European Community0.30.50.2-1.0-0.9-0.8-0.1-0.7-0.2
    West Germany0.21.10.8-1.0-1.00.11.20.10.2-0.30.1

    Data through 1990 apply to west Germany only.

    Changes expressed as percent of GDP in the preceding period.

    Table A4.Industrial Countries: Employment, Unemployment, and Real Per Capita GDP(In percent)
    Average1
    1974-831984198519861987198819891990199119921993
    Growth in employment
    United States1.74.12.02.32.62.32.00.5-0.71.21.7
    Japan0.90.60.70.81.01.72.02.01.91.00.6
    Germany2-0.30.20.71.40.70.81.42.9-2.8-1.61.0
    France0.1-0.9-0.30.10.30.81.21.10.10.4
    Italy0.70.50.8-0.11.3-0.51.41.40.40.4
    United Kingdom-0.52.21.10.32.33.32.60.3-2.7-1.80.7
    Canada2.02.42.62.82.93.22.00.7-1.81.83.1
    Other industrial countries0.60.61.12.41.52.21.91.5-0.10.41.1
    All industrial countries1.02.01.41.71.82.01.81.2-0.30.51.1
    Of which,
    Seven countries above1.02.31.41.61.81.91.81.2-0.30.51.1
    European Community0.10.30.50.91.01.51.41.6-0.8-0.50.8
    West Germany-0.30.20.71.40.70.81.42.92.80.70.5
    Unemployment rates
    United States7.57.57.27.06.25.55.35.56.86.76.2
    Japan2.12.72.62.82.82.52.32.12.12.12.2
    Germany24.37.98.07.67.67.66.86.26.57.67.6
    France5.79.710.510.410.510.09.49.19.610.010.0
    Italy7.910.010.311.112.012.012.011.010.910.810.7
    United Kingdom5.510.710.911.110.08.16.35.98.19.79.7
    Canada8.111.210.59.58.97.87.58.110.310.09.1
    Other industrial countries6.111.210.910.410.09.58.78.49.19.38.9
    All industrial countries5.88.18.07.87.56.96.36.27.07.37.0
    Of which,
    Seven countries above5.77.47.47.36.96.35.85.76.66.86.6
    European Community6.310.911.211.110.910.29.38.59.19.79.6
    West Germany4.37.98.07.67.67.66.86.25.55.76.0
    Growth in real per capita GDP
    United States0.85.32.22.02.23.01.5-0.1-1.70.62.5
    Japan2.53.74.52.13.85.84.44.94.01.63.4
    Germany21.73.52.12.11.43.12.83.01.01.82.8
    France1.80.91.52.11.83.73.42.30.81.42.2
    Italy2.43.62.22.83.03.92.91.80.81.52.3
    United Kingdom1.12.03.33.74.54.02.00.7-2.40.62.9
    Canada1.85.54.02.53.13.51.2-0.9-3.01.03.7
    Other industrial countries1.23.12.52.02.32.83.22.00.41.62.3
    All industrial countries1.44.02.72.22.63.62.71.80.21.12.7
    Of which,
    Seven countries above1.54.12.72.22.63.82.61.70.21.12.8
    European Community1.62.42.22.52.53.63.02.30.51.52.6
    West Germany1.73.52.12.11.43.12.83.02.30.71.8

    Compound annual rates of change for employment and per capita GDP, and arithmetic averages for unemployment rates.

    Data through 1990 apply to west Germany only.

    Table A5.Developing Countries: Real GDP(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR4.04.54.43.84.53.93.73.53.36.75.4
    All developing countries4.04.23.73.73.94.13.21.3-3.40.44.4
    By region
    Africa2.41.44.11.70.83.62.70.91.42.73.0
    Asia5.88.46.76.78.18.95.35.65.85.55.7
    Europe4.13.52.13.52.94.72.3-2.3-16.0-13.51.2
    Middle East3.00.61.4-1.62.4-1.74.74.20.415.07.3
    Western Hemisphere3.13.63.44.32.20.71.0-0.12.82.74.2
    Sub-Saharan Africa2.32.33.63.42.02.81.71.11.42.12.2
    Four newly industrializing Asian economies7.89.74.411.012.39.66.36.77.56.36.3
    Eastern Europe and former USSR413.32.03.32.74.72.3-2.9-16.9-14.6
    Eastern Europe3.74.63.13.41.81.3-0.8-7.1-16.6-1.03.9
    Former USSR4.32.91.63.32.95.53.0-2.0-17.0-17.5
    By predominant export
    Fuel3.31.42.3-0.11.1-0.23.94.31.712.36.9
    Non-fuel exports4.15.24.24.94.85.43.10.6-4.7-3.13.5
    Manufactures4.77.57.06.76.96.23.72.01.63.64.9
    Primary products1.83.32.04.43.11.21.43.04.04.0
    Agricultural products2.03.11.94.22.51.40.52.03.04.14.0
    Minerals1.04.02.25.25.60.1-1.9-0.63.13.73.8
    Services and private transfers4.24.33.54.86.53.73.22.43.63.64.2
    Diversified export base4.32.71.22.82.65.63.2-1.3-14.3-14.00.9
    By financial criteria
    Net creditor countries3.50.61.1-2.70.4-1.05.17.66.28.45.1
    Net debtor countries3.94.74.14.54.44.83.00.5-4.9-1.14.2
    Market borrowers4.45.44.14.74.44.92.70.2-5.8-4.73.4
    Diversified borrowers4.03.73.14.25.34.94.31.0-4.710.27.3
    Official borrowers2.92.35.13.62.74.42.60.81.42.63.4
    Countries with recent debt-Servicing difficulties2.93.13.63.82.91.71.9-1.8-2.36.25.5
    Countries without debt-servicing difficulties4.75.84.44.95.26.53.61.5-6.1-5.03.5
    Miscellaneous groups
    Small low-income economies3.54.03.84.03.03.72.93.23.13.63.7
    Least developed countries3.91.42.13.52.22.81.92.22.53.13.4
    Fifteen heavily indebted countries3.02.33.84.21.71.51.3-0.50.62.04.3
    Memorandum: Median growth rate
    Developing countries4.13.43.33.32.83.93.13.12.93.84.0
    Table A6.Developing Countries: Real Per Capita GDP(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR1.32.02.01.12.31.51.41.21.34.13.2
    All developing countries2.02.21.81.62.32.41.5-0.4-4.9-1.62.5
    By region
    Africa-0.4-1.41.0-1.3-2.00.7-0.1-1.9-1.3-0.6-0.3
    Asia3.26.65.04.96.37.13.43.84.13.94.0
    Europe3.22.51.13.02.34.11.5-3.0-16.5-14.10.6
    Middle East-1.1-3.2-2.0-5.2-1.8-4.91.81.0-2.110.54.2
    Western Hemisphere0.51.51.31.01.2-1.4-1.3-2.10.80.62.1
    Sub-Saharan Africa-0.6-0.70.60.4-1.0-0.2-1.3-1.9-1.8-1.1-1.0
    Four newly industrializing Asian economies5.98.33.39.811.18.45.15.56.45.25.1
    Eastern Europe and former USSR3.22.41.12.82.24.21.6-3.4-17.3-15.0
    Eastern Europe3.04.12.63.01.51.1-1.0-7.4-16.8-1.33.7
    Former USSR3.31.90.62.82.45.02.1-2.6-17.4-17.9
    By predominant export
    Fuel-0.3-1.9-0.7-4.1-1.5-3.21.11.4-0.58.34.0
    Non-fuel exports2.43.62.63.53.44.01.5-0.8-6.0-4.42.0
    Manufactures3.05.95.55.25.44.82.10.40.12.03.4
    Primary products-0.91.5-0.22.10.9-1.0-2.7-0.70.81.71.8
    Agricultural products-0.81.5-0.21.90.3-0.6-2.20.81.81.9
    Minerals-1.31.6-0.22.73.5-2.5-4.3-2.90.81.51.5
    Services and private transfers1.81.60.72.23.51.10.60.11.01.11.8
    Diversified export base3.01.4-0.11.91.84.82.0-2.2-15.0-14.8-0.1
    By financial criteria
    Net creditor countries-0.9-3.3-2.3-6.2-3.8-4.22.34.43.45.72.3
    Net debtor countries2.02.92.32.63.03.31.3-1.0-6.2-2.92.6
    Market borrowers2.83.92.73.23.53.71.3-1.0-6.9-6.02.0
    Diversified borrowers1.71.50.81.83.02.61.9-0.9-6.16.75.2
    Official borrowers-0.12.81.10.22.10.4-1.6-1.00.11.1
    Countries with recent debt-servicing difficulties0.40.71.41.01.3-0.5-0.2-3.8-4.03.33.4
    Countries without debt-servicing difficulties3.24.42.93.64.05.32.10.3-7.2-6.22.1
    Miscellaneous groups
    Small low-income economies-0.21.31.21.30.31.20.30.50.20.60.9
    Least developed countries1.2-1.4-0.60.8-0.50.2-0.7-0.4-0.50.10.5
    Fifteen heavily indebted countries0.50.31.71.00.5-0.6-1.0-2.4-1.40.12.3
    Table A7.Developing Countries: Gross Capital Formation(Annual changes, in percent)
    198419851986198719881989199019911992
    Developing countries excluding
    Eastern Europe and former USSR23.023.223.624.024.424.524.324.825.0
    All developing countries25.425.526.126.426.726.425.826.226.2
    By region
    Africa19.419.120.420.421.021.321.220.820.9
    Asia28.229.528.828.929.729.929.229.029.3
    Europe30.730.631.331.130.629.528.528.528.3
    Middle bast25.520.722.922.020.621.821.523.923.8
    Western Hemisphere17.218.418.120.021.019.719.720.821.2
    Sub-Saharan Africa15.817.318.619.718.817.617.417.417.8
    Four newly industrializing Asian economies28.626.425.527.228.629.131.032.933.1
    Eastern Europe and former USSR31.331.131.631.430.929.828.628.9
    Eastern Europe28.928.730.328.528.126.326.322.423.2
    Former USSR32.231.932.132.131.530.529.130.1
    By predominant export
    Fuel22.620.922.622.822.522.422.524.924.7
    Non-fuel exports26.327.027.227.427.827.326.626.526.6
    Manufactures26.328.028.128.128.528.427.827.027.5
    Primary products15.515.415.316.417.615.214.614.714.8
    Agricultural products15.415.414.916.117.114.513.813.914.0
    Minerals15.615.316.517.519.217.216.716.616.8
    Services and private transfers21.420.720.320.420.820.419.918.819.2
    Diversified export base30.329.529.729.929.729.228.028.828.6
    By financial criteria
    Net creditor countries25.420.122.522.321.222.622.224.624.5
    Net debtor countries25.426.226.526.927.426.926.326.526.5
    Market borrowers27.528.528.829.129.428.828.028.628.6
    Diversified borrowers22.923.222.522.723.022.723.121.521.9
    Official borrowers17.518.820.220.221.220.518.918.118.3
    Countries with recent debt-servicing difficulties18.619.319.720.521.420.319.819.820.5
    Countries without debt-servicing difficulties29.930.530.430.330.329.929.229.529.4
    Miscellaneous groups
    Small low-income economies15.016.116.617.417.517.216.816.717.0
    Least developed countries15.916.015.616.717.115.915.415.115.4
    Fifteen heavily indebted countries16.918.018.319.620.719.719.920.320.8
    Memorandum: Median estimates
    Developing countries21.121.121.221.221.320.920.020.020.4
    Africa18.219.619.519.418.518.017.618.618.4
    Asia25.625.423.723.327.228.028.529.428.9
    Europe28.727.928.427.627.427.727.426.124.7
    Middle East23.721.222.419.219.820.019.218.819.4
    Western Hemisphere18.519.018.920.021.019.618.920.120.5

    Inflation: Summary

    Table A8.Inflation(In percent)
    Average
    1974-831984198519861987198819891990199119921993
    GDP deflators
    Industrial countries8.74.84.03.53.03.54.14.13.93.23.1
    United States7.84.53.72.73.13.94.44.13.72.42.9
    Japan6.02.31.61.80.41.92.11.92.12.9
    Germany14.52.12.23.31.91.52.63.44.85.24.4
    Other industrial countries11.76.96.05.44.75.15.45.35.14.03.5
    Consumer prices
    Industrial countries9.24.74.22.43.03.34.44.94.43.33.2
    United States8.44.43.51.93.74.14.85.44.23.13.1
    Japan7.62.22.00.60.10.72.33.13.32.22.4
    West Germany4.82.42.2-0.10.21.52.82.73.53.83.7
    Other industrial countries11.86.66.44.54.34.25.56.05.23.83.5
    Developing countries excluding
    Eastern Europe and former USSR25.737.834.327.936.457.271.180.041.437.616.1
    All developing countries17.027.625.220.825.938.550.657.856.7133.521.3
    By region
    Africa16.721.213.013.614.419.218.715.822.525.819.9
    Asia11.16.56.812.412.618.613.38.99.48.67.6
    Europe4.46.36.36.56.99.619.523.390.9636.841.8
    Middle East15.215.612.713.818.117.916.612.716.014.815.9
    Western Hemisphere58.9124.2128.279.4117.8243.2434.5648.3162.5140.025.3
    Eastern Europe and former USSR2.94.44.75.35.77.518.122.092.8713.5
    Eastern Europe10.014.616.116.923.641.8130.6149.1134.795.044.0
    Former USSR0.71.11.12.01.30.62.05.686.01.000.0
    By analytical criteria
    Fuel exporters17.020.713.620.731.832.019.514.616.813.711.0
    Non-fuel exporters19.030.229.420.924.140.359.670.769.0187.625.2
    Market borrowers20.836.534.121.928.544.861.877.380.5260.123.1
    Official borrowers17.428.325.537.035.356.256.962.332.032.826.6
    Countries with recent debt-servicing difficulties39.476.071.457.177.7139.5233.8307.5114.198.227.9
    Counines without debt-servicing difficulties6.26.46.55.25.26.77.28.246.0213.721.2
    Memorandum: Median inflation rate
    Developing countries11.79.97.713.27.78.19.610.08.87.96.3

    Data through 1990 apply to west Germany only.

    Table A9.Industrial Countries; GDP Deflators and Consumer Prices(Annual changes, in percent)
    AverageFourth Quarter1
    1974-831984198519861987198819891990199119921993199119921993
    GDP deflators
    United States7.84.53.72.73.13.94.44.13.72.42.93.02.72.9
    Japan26.02.31.61.80.41.92.11.92.11.92.01.71.9
    Germany2,34.52.12.23.31.41.52.63.44.85.24.4
    France11.07.55.85.23.02.93.22.82.92.52.33.22.32.2
    Italy17.111.58.97.96.06.66.07.57.55.25.27.55.25.2
    United Kingdom13.94.65.73.55.06.57.16.46.44.43.16.53.53.0
    Canada9.03.12.62.44.74.84.73.02.72.42.61.93.02.5
    Other industrial countries10.37.06.16.34.95.15.85.85.04.53.8
    All industrial countries8.74.84.03.53.03.54.14.13.93.23.1
    Of which,
    Seven countries above8.44.53.73.12.83.23.93.83.83.03.03.52.82.8
    European Community10.66.45.65.33.84.14.65.05.54.53.9
    West Germany4.52.12.23.31.91.52.63.44.54.33.85.24.03.5
    Consumer prices
    United States8.44.43.51.93.74.14.83.44.23.13.13.03.13.0
    Japan7.62.22.00.60.10.72.33.13.32.22.42.82.12.4
    West Germany4.82.42.2-0.10.21.32.82.73.53.83.74.03.23.8
    France11.27.45.82.53.32.73.53.43.12.72.52.92.52.6
    Italy17.010.99.15.94.75.06.36.56.45.05.26.24.35.7
    United Kingdom14.25.06.13.44.14.97.89.55.93.73.14.23.33.0
    Canada9.44.34.04.24.44.05.04.85.61.72.34.12.22.1
    Other industrial countries10.16.06.55.54.64.35.26.15.44.43.8
    All industrial countries9.24.74.22.43.03.34.44.94.43.33.2
    Of which,
    Seven countries above9.04.53.82.02.83.14.24.84.23.13.13.42.93.1
    European Community10.66.45.73.23.03.34.85.24.74.03.7

    From fourth quarter of preceding year.

    GNP deflator.

    Data through 1990 apply to west Germany only.

    Table A10.Industrial Countries: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Hourly earnings
    United States9.13.15.14.02.23.94.15.24.54.74.4
    Japan8.42.43.82.31.13.26.96.75.86.15.9
    West Germany7.93.23.85.05.23.94.25.77.05.75.3
    France14.98.67.25.54.84.94.55.04.54.45.0
    Italy20.713.110.23.16.73.17.15.78.56.26.2
    United Kingdom15.57.68.57.97.57.89.49.39.65.94.8
    Canada10.74.93.93.12.44.95.55.65.33.53.6
    Other industrial countries13.07.27.46.96.45.66.57.26.65.85.3
    All industrial countries10.94.85.64.43.54.45.56.15.95.35.1
    Of which,
    Seven countries above10.54.45.44.03.04.25.45.95.75.35.0
    European Community13.87.57.35.75.95.26.06.47.25.65.5
    Productivity (output per hour)
    United States1.42.62.34.34.14.10.52.41.83.63.8
    Japan2.45.71.7-0.44.97.45.14.01.51.54.0
    West Germany3.43.73.61.01.84.33.33.53.11.82.6
    France4.12.13.13.34.48.04.30.81.21.82.4
    Italy3.71.73.3-0.83.92.5-0.6-1.22.01.31.7
    United Kingdom2.24.42.53.85.55.24.50.41.33.02.9
    Canada2.216.02.7-1.11.74.0-0.13.38.54.43.2
    Other industrial countries4.74.84.01.62.53.72.71.31.62.52.4
    All industrial countries2.74.02.72.43.84.92.32.32.02.63.2
    Of which,
    Seven countries above2.33.92.52.64.05.02.32.42.12.63.4
    European Community3.73.63.62.03.44.72.91.11.92.02.4
    Unit labor costs
    United States7.60.52.7-0.3-1.8-0.23.52.72.71.10.6
    Japan5.8-3.22.02.7-3.6-3.81.72.74.24.51.8
    West Germany4.3-0.40.24.03.3-0.20.82.13.83.92.6
    France10.36.44.02.10.4-2.90.24.23.32.52.6
    Italy16.311.26.64.02.72.57.77.06.34.84.4
    United Kingdom12.93.15.94.01.92.54.68.88.22.81.8
    Canada8.3-9.51.14.30.70.85.62.3-3.0-0.90.3
    Other industrial countries8.42.33.35.33.92.03.85.95.03.33.0
    All industrial countries8.10.92.92.0-0.3-0.43.13.83.82.71.9
    Of which,
    Seven countries above8.00.62.81.5-0.9-0.83.03.43.62.61.6
    European Community9.83.93.73.72.40.63.05.35.23.53.1
    Table A11.Developing Countries: Consumer Prices—Weighted Averages(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR25.737.834.327.936.457.271.180.041.437.616.1
    All developing countries17.027.625.220.825.938.550.657.856.7133.521.3
    By region
    Africa16.721.213.013.614.419.218.715.822.525.819.9
    Asia11.16.56.812.412.618.613.38.99.48.67.6
    Europe4.46.36.36.56.99.619.523.390.9636.841.8
    Middle East15.215.612.713.818.117.916.612.716.014.815.9
    Western Hemisphere58.9124.2128.279.4117.8243.2434.5648.3162.5140.025.3
    Sub-Saharan Africa22.724.218.518.922.020.621.921.035.141.933.0
    Four newly industrializing Asian economies12.72.71.71.82.44.85.76.97.66.85.6
    Eastern Europe and former USSR2.94.44.75.35.77.518.122.092.8713.5
    Eastern Europe10.014.616.116.923.641.8130.6149.1134.795.044.0
    Former USSR0.71.11.12.01.30.62.05.686.01,000.0
    By predominant export
    Fuel17.020.713.620.731.832.019.514.616.813.711.0
    Non-fuel exports19.030.229.420.924.140.359.670.769.0187.625.2
    Manufactures25.237.336.324.934.468.0103.2132.768.569.320.9
    Primary products67.0112.2120.877.877.2143.8293.3267.584.137.125.6
    Agricultural products67.6125.0116.683.885.6142.1276.2213.069.532.626.0
    Minerals63.475.4136.255.044.9151.5369.9552.4142.754.223.9
    Services and private transfers11.612.614.114.816.513.816.317.715.818.931.1
    Diversified export base2.34.33.63.93.32.23.46.473.1648.931.8
    By financial criteria
    Net creditor countries12.23.91.37.112.714.512.95.810.110.410.7
    Net debtor countries19.331.128.722.727.741.956.567.065.5167.223.8
    Market borrowers18.236.534.121.928.544.861.877.380.5260.123.1
    Diversified borrowers20.817.515.516.720.324.938.535.232.630.724.5
    Official borrowers17.428.325.537.035.356.256.962.332.032.826.6
    Countries with recent debt-servicing difficulties39.476.071.457.177.7139.5233.8307.5114.198.227.9
    Countries without debt-servicing difficulties6.26.46.55.25.26.77.28.246.0213.721.2
    Miscellaneous groups
    Small low-income economies19.324.625.266.359.673.042.034.139.242.435.6
    Least developed countries14.918.021.817.622.022.226.926.034.840.740.6
    Fifteen heavily indebted countries52.8112.2108.168.5104.4217.4425.4574.5158.0136.828.5
    Table A12.Developing Countries: Consumer Prices—Median Estimates(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR12.110.37.96.67.98.29.710.08.17.35.7
    All developing countries11.79.97.76.27.78.19.610.08.87.96.3
    By region
    Africa12.511.58.87.37.87.19.59.48.17.75.4
    Asia9.56.74.65.56.58.88.29.58.97.46.3
    Europe5.84.43.92.32.73.05.118.566.155.321.8
    Middle East11.26.44.75.26.75.87.07.67.96.46.3
    Western Hemisphere13.612.015.010.414.612.015.113.18.07.44.7
    Sub-Saharan Africa12.811.49.26.97.27.19.69.88.07.45.3
    Four newly industrializing Asian economies9.32.41.51.81.84.35.16.46.66.25.0
    Eastern Europe and former USSR2.52.82.82.72.72.66.426.386.067.025.3
    Of which,
    Eastern Europe4.55.84.94.05.59.411.829.9117.358.221.8
    By predominant export
    Fuel11.912.36.26.18.25.56.77.56.16.44.1
    Non-fuel exports11.68.78.36.27.78.510.010.88.98.26.4
    Manufactures8.52.83.55.37.37.57.710.019.113.78.5
    Primary products13.412.413.013.614.614.713.011.88.99.68.0
    Agricultural products13.312.210.413.412.814.512.811.78.89.56.8
    Minerals13.519.915.018.919.914.717.017.118.89.79.5
    Services and private transfers11.25.64.94.84.94.86.25.14.84.64.4
    Diversified export base10.410.98.87.33.13.96.67.410.65.74.9
    By financial criteria
    Net creditor countries9.50.50.62.33.42.73.35.04.53.73.4
    Net debtor countries11.910.38.36.98.28.510.011.08.98.36.4
    Market borrowers10.05.15.85.46.77.29.610.920.113.88.7
    Diversified borrowers12.211.49.66.99.39.712.012.58.98.36.7
    Official borrowers12.310.78.38.28.39.19.710.08.17.35.5
    Countries with recent debt-servicing difficulties13.414.414.311.716.515.215.114.79.44.26.9
    Countries without debt-servicing difficulties10.25.54.44.85.55.97.78.68.97.56.3
    Miscellaneous groups
    Small low-income economies12.311.410.38.012.811.310.711.59.38.36.7
    Least developed countries12.010.48.38.59.79.79.810.08.88.05.8
    Fifteen heavily indebted countries24.350.330.723.028.154.550.532.426.119.910.0

    Financial Policies: Summary

    Table A13.Summary Financial Indicators(In percent)
    1984198519861987198819891990199119921993
    Major industrial countries
    Fiscal balances of central government1
    All seven countries-4.6-4.5-4.3-3.2-2.6-2.3-2.7-3.3-4.0-3.6
    United States-4.4-4.5-4.7-3.3-2.8-2.4-3.0-3.9-5.1-4.3
    Japan-4.2-3.7-3.2-2.2-1.3-1.1-1.1-1.3-1.3-1.2
    Germany2-1.6-1.2-1.2-1.4-1.7-0.9-1.8-1.9-1.5-1.4
    France-3.4-3.3-2.8-2.2-2.0-1.6-1.4-2.0-1.8-1.7
    Italy-13.2-13.8-12.2-11.6-11.4-11.2-10.8-10.7-10.8-10.9
    United Kingdom-3.1-2.3-2.0-1.01.31.4-0.7-2.0-5.5-5.7
    Canada-6.8-6.6-4.7-3.8-3.2-3.3-3.8-4.4-2.8-1.8
    Fiscal balances of general government1
    All seven countries-3.4-3.2-3.3-2.3-1.7-0.9-1.6-2.4-3.0-2.6
    United States-2.9-3.1-3.4-2.5-2.0-1.6-2.5-3.5-4.7-3.7
    Japan-2.1-0.8-0.90.51.52.52.93.03.03.0
    Germany3-1.9-1.1-1.3-1.9-2.10.2-2.1-3.3-3.6-3.1
    France-2.8-2.9-2.7-1.9-1.8-1.2-1.6-1.9-1.8-1.7
    Italy-11.6-12.5-11.6-11.0-10.8-10.0-10.6-10.2-10.4-10.4
    United Kingdom-3.9-2.8-2.4-1.31.11.2-0.7-2.3-5.1-5.7
    Canada-6.5-6.8-5.4-3.8-2.6-3.1-3.8-5.4-3.9-2.6
    Growth of broad money4
    All seven countries8.78.39.36.37.68.25.83.8
    United States8.68.29.43.55.55.03.22.93.96.5
    Japan7.88.79.210.810.212.07.42.3
    Germany34.75.06.76.06.35.66.06.45.5
    France9.84.75.34.43.73.74.52.53.04.0
    Italy11.311.19.68.68.911.39.910.77.08.0
    United Kingdom13.713.016.115.917.219.112.25.8
    Canada7.210.69.36.111.714.37.81.95.37.1
    Short-term interest rates5
    United States9.57.56.05.86.78.17.55.44.15.4
    Japan6.36.55.03.94.04.76.97.05.05.0
    Germany6.05.44.64.04.37.18.59.29.48.6
    Six-month LIBOR11.38.66.87.38.19.38.46.14.55.5
    Developing countries excluding
    Eastern Europe and former USSR
    Fiscal balances of central government1
    Weighted averages-5.2-4.9-6.7-6.9-6.7-5.2-3.3-4.2-3.0-2.7
    Medians-4.8-4.5-5.2-5.7-5.2-4.5-3.6-3.2-2.8-2.3
    Growth of broad money
    Weighted averages48.941.533.145.562.273.269.348.97.616.6
    Medians16.315.117.515.618.316.413.612.511.111.0

    In percent of GDP (GNP for Japan and Germany)

    Data through June 1990 apply to west Germany only.

    Data through 1990 apply lo west Germany only.

    For definitions of broad money, see Table A14., footnote 4.

    Three-month treasury bills for the United States, three-month certificates of deposits for Japan, three-month interbank deposits for Germany, and the London interbank offered rate on six-month U.S. dollar deposits (LIBOR).

    Table A14.Major Industrial Countries: Monetary Aggregates

    (Annual changes, in percent)1

    19841985198619871988198919901991
    Narrow money2
    United States5.912.316.83.54.90.94.08.6
    Japan6.93.010.44.88.62.44.59.5
    Germany36.24.97.47.510.65.67.83.1
    France10.06.38.54.64.17.93.33.5
    Italy12.410.49.17.98.112.37.910.0
    United Kingdom5.53.75.24.38.55.72.63.0
    Canada0.59.95.28.57.12.3-1.91.9
    Seven countries above6.68.812.64.76.73.44.47.3
    Four European countries above8.26.17.56.17.97.75.64.7
    Broad money4
    United States8.68.29.43.55.55.03.22.9
    Japan7.88.79.210.810.212.07.42.3
    Germany34.75.06.76.06.35.66.06.4
    France9.84.75.34.43.73.74.52.5
    Italy11.311.19.68.68.911.39.910.7
    United Kingdom13.713.016.115.917.219.112.25.8
    Canada7.210.69.36.111.714.37.81.9
    Seven countries above8.78.39.36.37.68.25.83.8
    Four European countries above9.48.09.18.38.49.17.86.3

    Based on end-of-period data.

    M1 except for The United Kingdom, where M0 is used here as a measure of narrow money; it comprises notes in circulation with the public plus bankers operational deposits. M1 is generally currency in circulation plus private demand deposits. In addition, the United States includes travelers’ checks of nonbank issues and other checkable deposits, and excludes private sector float and demand deposits of banks; Japan includes government demand deposits and excludes float; Germany includes demand deposits at fixed interest rates; and Canada excludes private sector float.

    Data through 1990 apply to west Germany only. The growth rates for the monetary aggregates in 1991 are statistically adjusted for the extension of the currencyarea

    M2, defined as Ml plus quasi-money, except for Japan, Germany, and the United Kingdom, for which the data are based on M2 + CDs, M3, and M4, respectively. Quasi-money is essentially private term deposits and other notice deposits. The United States also includes money market mutual fund balances, money market deposit accounts, overnight repurchase agreements, and overnight Eurodollars issued to U.S. residents by foreign branches of U.S. banks. For Japan, M2 + CDs is currency in circulation plus total private and public sector deposits and installments of Sogo Banks plus certificates of deposit. For Germany, M3 is Ml plus private time deposits with maturities of less than four years plus savings deposits at statutory notice. For the United Kingdom, M4 is composed of non-interest-bearing Ml, private sector interest-bearing sterling sight bank deposits, private sector sterling time bank deposits, private sector holdings of sterling bank certificates of deposit, private sector holdings of building society shares and deposits, and sterling certificates of deposit less building society holdings of bank deposits and bank certificates of deposit, and notes and coins.

    Table A15.Major Industrial Countries: Interest Rates(In percent a year)
    March
    198419851986198719881989199019911992
    Short-term interest rates1
    United States10.48.06.56.97.79.18.25.84.1
    Japan6.46.65.04.14.45.37.67.25.1
    Germany6.05.44.64.04.37.18.49.29.7
    France11.29.97.78.27.99.310.39.710.3
    Italy15.313.911.911.111.212.712.312.712.5
    United Kingdom9.912.210.99.710.313.914.811.510.4
    Canada11.29.69.28.49.612.213.09.07.3
    Seven countries above9.68.46.96.77.28.79.27.86.6
    Four European countries above10.19.88.37.87.910.311.110.610.6
    Long-term interest rates2
    United States12.510.67.78.48.88.58.67.97.3
    Japan7.36.55.35.04.85.17.06.35.4
    Germany8.07.06.16.26.57.08.78.57.9
    France12.510.98.69.49.18.810.09.08.5
    Italy316.614.612.211.612.013.313.613.112.3
    United Kingdom11.311.110.19.69.710.211.810.19.3
    Canada12.711.19.59.910.29.910.89.89.0
    Seven countries above11.49.97.78.08.18.19.08.37.6
    Four European countries above11.610.58.98.99.09.510.810.09.3

    Interest rate on the following instruments: United States, three-month certificates of deposit in secondary markets; Japan, from July 1984, three-month certificates of deposit (through June 1984, three-month Gensaki rate); Germany, France, and the United Kingdom, three-month interbank deposits; Italy, three-month treasury bills; and Canada, three-month prime corporate paper.

    Yield on ten-year treasury bonds for the United States; over-the-counter sales yield on ten-year government bonds with longest residual maturity for Japan; yield on government bonds with maturities of nine to ten years for Germany; long-term (seven to ten years) government bond yield (Emprunts d’Etat a long terme TME) for France; secondary market yield on fixed-coupon (BTP) government bonds with two to four years residual maturity for Italy; yield on medium-dated (ten-year) government stock for the United Kingdom; and average yield on government bonds with residual maturities of over ten years for Canada.

    March 1992 data refers to yield on ten-year government bonds.

    Table A16.Major Industrial Countries: Central Government Fiscal Balances and Impulses

    (In percent of GDP)1

    1984198519861987198819891990199119921993
    Fiscal balance
    (+surplus, - deficit)
    United States2-4.4-4.5-4.7-3.3-2.8-2.4-3.0-3.9-5.1-4.3
    Japan3-4.2-3.7-3.2-2.2-1.3-1.1-1.1-1.3-1.3-1.2
    Germany4,5-1.6-1.2-1.2-1.4-1.7-0.9-1.8-1.9-1.5-1.4
    France5-3.4-3.3-2.8-2.2-2.0-1.6-1.4-2.0-1.8-1.7
    Italy6-13.2-13.8-12.2-11.6-11.4-11.2-10.8-10.7-10.8-10.9
    United Kingdom7-3.1-2.3-2.0-1.01.31.4-0.7-2.0-5.5-5.7
    Canada7-6.8-6.6-4.7-3.8-3.2-3.3-3.8-4.4-2.8-1.8
    Seven countries above-4.4-4.5-4.3-3.2-2.6-2.3-2.7-3.3-4.0-3.6
    Seven countries except the United States-4.7-4.4-3.8-3.1-2.5-2.2-2.6-2.9-3.2-3.1
    Fiscal impulse
    (+ expansionary, - contractionary)
    United States0.20.20.2-1.2-0.3-0.50.20.10.9-0.5
    Japan-0.7-0.3-0.8-0.9-0.50.10.3-0.3-0.1
    West Germany0.2-0.40.4-0.6
    France-0.1-0.4-0.50.1-0.1-0.20.2-0.3-0.2
    Italy0.11.4-0.8-0.60.2-0.3-0.7-0.5-0.3
    United Kingdom0.3-0.30.2-0.1-1.4-0.21.3-0.92.60.5
    Canada81.50.3-1.8-0.5-0.1-0.2-0.9-1.7-0.6
    Seven countries above90.10.1-0.1-0.9-0.3-0.30.10.4-0.2
    Seven countries except the United States9-0.6-0.5-0.3-0.20.1-0.1

    For Japan and Germany, in percent of GNP.

    Data on a budget basis.

    Data on a national income basis, excluding social security transactions.

    Data through June 1990 apply to west Germany only.

    Data on an administrative basis, excluding social security transactions.

    Data refer to the state sector and cover the transactions of the state budget as well as those of several autonomous entities operating at the same level; data do not include the gross transactions of social security institutions, only their deficits.

    Data on a national income accounts basis.

    In 1989, the fiscal impulse would be contractionary if interest payments were excluded from expenditure.

    Excludes Germany from 1990 onward.

    Table A17.Major Industrial Countries: General Government Fiscal Balances and Impulses1

    (In percent of GDP)2

    1984198519861987198819891990199119921993
    Fiscal balance
    (+ surplus. - deficit)
    United States-2.9-3.1-3.4-2.5-2.0-1.6-2.5-3.5-4.7-3.7
    Japan-2.1-0.8-0.90.51.52.52.93.03.03.0
    Germany3-1.9-1.1-1.3-1.9-2.10.2-2.1-3.3-3.6-3.1
    France4-2.8-2.9-2.7-1.9-1.8-1.2-1.6-1.9-1.8-1.7
    Italy-11.6-12.5-11.6-11.0-10.8-10.0-10.6-10.2-10.4-10.4
    United Kingdom5-3.9-2.8-2.4-1.31.11.2-0.7-2.3-5.1-5.7
    Canada-6.5-6.8-5.4-3.8-2.6-3.1-3.8-5.4-3.9-2.6
    Seven countries above-3.4-3.2-3.3-2.3-1.7-0.9-1.6-2.4-3.0-2.6
    Seven countries except the United States-3.9-3.3-3.1-2.2-1.4-0.4-1.0-1.6-1.9-1.8
    Fiscal impulse
    (+ expansionary, - contractionary)
    United States0.30.40.4-0.8-0.50.3-0.30.8-0.4
    Japan-1.5-0.8-0.2-1.3-0.4-0.7-0.10.1-0.5
    West Germany0.4-0.80.30.20.8-1.6
    France-0.70.2-0.90.60.10.4-0.5-0.5-0.2
    Italy1.71.8-0.50.2-0.70.3-0.9-0.2-0.1
    United Kingdom0.5-0.50.2-1.5-0.20.9-0.91.81.0
    Canada1.11.2-1.2-0.9-0.40.3-0.4-0.6-1.7-0.7
    Seven countries above60.10.l0.1-0.8-0.1-0.60.2-0.30.2-0.2
    Seven countries except the United States6-0.1-0.1-0.1-0.7-0.1-0.60.1-0.4-0.3
    Memorandum: Germany7
    Fiscal balance, territorial authorities8-2.6-2.1-2.2-2.6-2.5-1.2-3.3-4.4-4.0-3.6

    On a national income accounts basis.

    For Japan and Germany, in percent of GNP.

    Data through 1990 apply to west Germany only.

    Adjusted for valuation changes of the foreign exchange Stabilization fund.

    Excludes asset sales.

    Excludes Germany from 1990 onward.

    Data through June 1990 apply to west Germany only.

    General government, on an administrative basis, excluding social security transactions.

    Table A18.Developing Countries: Broad Money Aggregates(Annual changes, in percent)
    1984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR48.941.533.145.562.273.269.348.97.616.6
    All developing countries36.632.526.136.447.758.151.563.462.617.3
    By region
    Africa21.918.510.120.124.119.316.926.723.322.8
    Asia24.920.926.528.224.823.923.119.716.414.7
    Europe11.214.012.219.523.734.322.895.2304.922.0
    Middle East19.414.712.913.314.914.514.014.214.515.6
    Western Hemisphere133.8123.277.5130.6261.3388.4373.5177.7-17.615.2
    Sub-Saharan Africa30.329.526.521.722.719.121.938.429.332.6
    Four newly industrializing Asian economies14.918.521.723.319.518.519.417.714.513.4
    Eastern Europe and former USSR9.112.210.718.522.632.821.896.8
    Eastern Europe16.719.121.429.765.1160.244.857.181.146.4
    Former USSR6.59.97.615.714.114.717.6105.1
    By predominant export
    Fuel21.316.821.730.123.016.017.614.714.013.5
    Non-fuel exports42.538.327.638.455.370.961.178.880.318.6
    Manufactures58.748.336.651.191.1115.197.587.760.719.8
    Primary products117.9124.270.098.4136.4268.7187.731.6-83.427.1
    Agricultural products129.6121.473.7107.3130.1261.6133.712.9-91.125.9
    Minerals83.6134.455.764.1166.7298.6505.5119.343.731.7
    Services and private transfers16.615.923.716.411.717.717.316.616.023.4
    Diversified export base9.210.77.815.515.216.217.188.6302.713.0
    By financial criteria
    Net creditor countries9.29.612.714.615.513.711.912.313.313.5
    Net debtor countries40.735.927.939.552.465.258.173.073.618.1
    Market borrowers49.740.028.943.258.469.972.494.395.514.4
    Diversified borrowers23.923.321.524.632.455.420.926.431.726.5
    Official borrowers26.536.833.544.954.453.841.732.528.825.8
    Countries with recent debt-servicing difficulties77.372.752.086.0149.1228.0179.2109.32.822.2
    Countries without debt-servicing difficulties19.415.915.017.916.717.419.957.8129.815.6
    Miscellaneous groups
    Small low-income economies28.646.755.776.454.544.634.141.035.236.1
    Least developed countries22.823.825.120.024.827.025.031.937.238.9
    Fifteen heavily indebted countries111.3104.667.0118.0234.3401.6311.4162.0-7.020.8
    Memorandum: Median estimates
    Developing countries16.214.816.715.518.116.114.112.711.711.6
    Africa15.715.714.013.814.012.810.311.110.09.1
    Asia17.716.217.717.418.420.017.814.114.013.6
    Europe7.310.18.711.912.814.628.737.340.015.9
    Middle East15.210.79.98.98.013.212.010.99.09.0
    Western Hemisphere17.014.824.419.523.614.313.610.910.911.0
    Table A19.Developing Countries: Central Government Fiscal Balances(In percent of GDP)
    1984198519861987198819891990199119921993
    Developing countries excluding
    Eastern Europe and former USSR-5.2-4.9-6.7-6.9-6.7-5.2-3.3-4.2-3.0-2.7
    All developing countries-3.5-3.9-6.2-6.9-6.9-5.8-3.8-9.8-4.1-2.9
    By region
    Africa-5.2-4.9-6.1-7.5-8.4-4.5-3.7-3.7-3.7-3.0
    Asia-2.6-2.9-3.8-3.4-3.2-2.9-2.8-2.3-2.1-1.9
    Europe0.5-1.4-5.0-6.8-7.2-6.9-5.0-20.3-6.7-4.l
    Middle East-11.5-10.3-15.2-13.4-13.9-8.5-7.4-11.0-6.4-6.0
    Western Hemisphere-4.1-3.8-5.2-7.1-5.7-6.3-0.2-1.1-0.70.2
    Sub-Saharan Africa-5.2-5.4-7.0-8.1-7.8-7.1-7.0-7.8-5.9-5.0
    Four newly industrializing Asian economies0.10.8-0.10.82.11.40.4-0.5-0.7-0.7
    Eastern Europe and former USSR0.8-1.3-5.1-6.9-7.4-7.0-5.0-21.0
    Eastern Europe0.9-0.20.10.3-1.9-4.4-3.3-2.3
    Former USSR0.7-1.8-6.5-8.7-9.2-8.6-5.6-24.1
    By predominant export
    Fuel-6.3-6.9-11.0-11.0-11.5-5.7-3.5-5.9-3.3-3.1
    Non-fuel exports-2.6-2.9-4.7-5.6-5.7-5.8-3.9-10.8-4.4-2.9
    Manufactures-2.4-2.0-2.6-2.7-2.3-3.0-1.8-2.8-2.6-2.0
    Primary products-6.1-4.3-4.2-5.0-5.7-7.4-3.8-4.2-3.0-2.6
    Agricultural products-6.1-4.2-4.0-5.0-6.1-8.6-3.9-4.0-3.2-2.8
    Minerals-5.9-4.8-5.1-5.1-3.8-2.6-3.5-4.8-2.2-1.8
    Services and private transfers-12.2-13.0-12.9-12.9-13.5-12.3-12.8-10.0-6.4-6.0
    Diversified export base-0.5-2.3-6.3-8.3-8.5-7.8-5.3-21.2-6.7-4.0
    By financial criteria
    Net creditor countries-6.7-5.5-10.7-9.2-8.2-3.0-2.2-7.1-4.4-4.7
    Net debtor countries-3.1-3.7-5.7-6.6-6.7-6.2-4.1-10.2-4.1-2.5
    Market borrowers-1.6-2.1-4.7-6.1-6.1-5.6-2.9-11.4-3.6-1.5
    Diversified borrowers-5.9-7.0-8.1-7.1-8.0-7.4-7.0-7.1-5.4-5.1
    Official borrowers-6.3-5.9-6.5-8.3-8.5-8.1-7.2-7.3-4.9-4.2
    Countries with recent debt-servicing difficulties-5.1-5.2-6.8-8.1-8.0-7.6-4.0-4.6-2.8-1.8
    Countries without debt-servicing difficulties-1.7-2.7-4.9-5.7-6.1-5.5-4.1-12.9-4.8-3.1
    Miscellaneous groups
    Small low-income economies-5.9-6.5-7.3-7.1-7.7-7.1.1-6.9-7.4-5.9-5.3
    Least developed countries-8.1-7.9-8.1-8.8-8.9-8.2-7.6-7.7-7.4-6.4
    Fifteen heavily indebted countries-3.8-3.4-4.7-6.9-5.7-5.9-0.4-1.3-0.80.1
    Memorandum: Median estimates
    Developing countries-4.4-4.3-5.0-5.4-4.9-4.5-3.5-3.4-2.8-2.3
    Africa-5.8-5.3-6.3-6.9-6.1-4.6-4.6-4.0-3.0-2.3
    Asia-3.0-4.2-4.9-3.9-3.2-4.2-3.4-2.2-1.9-1.4
    Europe-0.4-1.1-2.5-3.2-1.8-1.2-3.3-5.6-4.8-3.7
    Middle East-14.6-14.0-16.2-17.8-13.0-9.2-9.1-10.8-9.1-9.0
    Western Hemisphere-4.7-3.2-2.5-2.5-3.9-3.2-1.8-2.0-1.9-1.0

    Trade: Summary

    Table A20.Summary of World Trade Volumes and Prices(Annual changes, in percent)
    Average
    1974-831984198519861987198819891990199119921993
    World trade1
    Volume3.08.53.35.16.28.96.74.13.35.06.3
    Unit value, in U.S. dollars8.9-2.4-2.14.510.75.21.38.7-1.51.81.8
    in SDRs10.11.8-1.2-9.60.41.26.32.7-2.31.93.3
    World trade prices2
    (in U.S. dollars)
    Manufactures7.0-3.11117.711.96.1-0.99.32.02.52.7
    Oil-4.5-48.828.7-20.421.528.2-17.0-8.93.1
    Non-fuel primary commodities3.12.0-13.2-3.88.823.3-0.5-7.9-4.71.24.2
    Volume of trade
    Exports
    Industrial countries3.99.64.02.74.48.46.65.52.74.25.5
    Developing countries-0.25.31.210.29.910.35.1-0.23.66.48.4
    Fuel exporters-5.40.5-4.111.62.711.710.23.10.810.36.3
    Non-fuel exporters4.37.83.69.912.09.93.8-1.24.45.48.9
    Imports
    Industrial countries2.912.44.88.26.68.47.34.52.53.55.6
    Developing countries5.42.00.7-1.45.610.07.14.16.59.27.8
    Fuel exporters11.2-5.8-11.1-18.3-5.05.98.26.49.712.53.9
    Non-fuel exporters3.84.84.53.68.110.86.93.65.88.48.7
    Unit value of trade
    (in SDRs)