Front Matter

Front Matter

International Monetary Fund
Published Date:
September 2009
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    © 2009 International Monetary Fund

    Production: IMF Multimedia Services Division

    Figures: Theodore F. Peters, Jr.

    Typesetting: Alicia Etchebarne-Bourdin

    Cataloging-in-Publication Data

    Fiscal implications of the global economic and financial crisis/by a staff team from the Fiscal Affairs Dept.—Washington, D.C.: International Monetary Fund, 2009.

    p. cm.—Occasional paper (International Monetary Fund); no. 269.

    Includes bibliographical references.

    ISBN 9781589068506

    1. Global Financial Crisis, 2008–2009. 2. Fiscal policy. 3. Economic stabilization. 4. Finance, Public. 5. Debts, Public. I. International Monetary Fund. Fiscal Affairs Dept. II. Title. III. Series: Occasional Paper (International Monetary Fund); no. 269.

    HB3722.F573 2009

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    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (-) between years or months (for example, 2007-08 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2007/08) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2008).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.


    The global financial crisis is having major implications for the public finances of most countries. Direct fiscal support is being provided to the financial sector. Fiscal revenues are declining through the operation of automatic stabilizers and because of lower asset and commodity prices. Many countries are undertaking discretionary fiscal stimulus. The consequent fiscal deterioration is particularly strong for advanced countries, where the increase in both government debt and contingent liabilities is unprecedented in scale and pervasiveness since the end of the Second World War. Moreover, these developments are taking place in the context of severe long-run fiscal challenges, especially for countries facing rapid population aging.

    The fiscal balances of G-20 advanced countries are projected to weaken by 8 percentage points of GDP on average, and government debt is projected to rise by 20 percentage points of GDP in 2008–09, with most of the deterioration occurring in 2009. The fiscal balances of G-20 emerging market economies will deteriorate by 5 percentage points of GDP. For advanced economies, the increase in debt mostly reflects support to the financial sector, fiscal stimulus, and revenue losses caused by the crisis. For emerging economies, a relatively large component of the fiscal weakening reflects declining commodity and asset prices. Collapsing asset prices have also had adverse effects on funded components of pension systems, with potentially significant risks for public accounts over the next few years.

    While fiscal balances are expected to improve over the medium term, they will remain weaker than before the crisis. Public debt-to-GDP ratios will continue to increase over the medium term: in 2014 the G-20 advanced country average is projected to exceed the end-2007 average by 36 percentage points of GDP. On current policies, debt ratios will continue to grow over the longer term, reflecting demographic forces. Moreover, for both advanced and emerging economies, the crisis has increased short- and medium-term fiscal risks, with key downside risks arising from the need for possible further support to the financial sector, the intensity and the persistence of the output downturn, and the return from the management and sale of assets acquired during the financial support operations.

    This somber fiscal outlook raises issues of fiscal solvency, and could eventually trigger adverse market reactions. This must be avoided: market confidence in governments’ solvency is a key source of stability and a precondition for economic recovery. Therefore, there is an urgent need for governments to clarify their strategy to ensure that solvency is not at risk. In formulating such a strategy, four components are particularly important: (1) fiscal stimulus packages, where these are appropriate, should not have permanent effects on deficits; (2) medium-term frameworks, buttressed by clearly identified policies and supportive institutional arrangements, should provide a commitment to fiscal correction, once economic conditions improve; (3) structural reforms should be implemented to enhance growth; and (4) countries facing demographic pressures should firmly commit to clear strategies for health and pension reforms. While these prescriptions are not new, the weaker state of public finances has dramatically raised the cost of inaction.

    This Occasional Paper was prepared by a staff team from the Fiscal Affairs Department headed by Carlo Cottarelli and comprising S. M. Ali Abbas, Steven Barnett, Thomas Baunsgaard, Jacques Bouhga-Hagbe, Giovanni Callegari, Stephanie Eble, Julio Escolano, Annalisa Fedelino, Manal Fouad, Robert Gillingham, Mark Horton, Anna Ivanova, Jiri Jonas, Philippe D. Karam, Daehaeng Kim, Manmohan Kumar, Daniel Leigh, Adam Leive, Lusine Lusinyan, Edouard Martin, Paolo Mauro, Steven Symansky, Elsa Sze, Anita Tuladhar, and Daria Zakharova, assisted by Sukhmani Bedi, Maria Coelho, Maria David, and Annette Kyobe. Esha Ray of the External Relations Department coordinated production of the publication.

    An earlier version of the paper (“The State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisis”) was discussed by the IMF’s Executive Board at a seminar on February 20, 2009. The opinions expressed in the paper are those of the authors, however, and do not necessarily reflect the views of the national authorities, the IMF, or IMF Executive Directors.



    Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility


    Asset Protection Scheme


    Capital Assistance Program


    Congressional Budget Office


    Contingent claims approach


    Caisse des Dépôts et Consignations


    Credit default swap


    Corporate income tax


    Commercial paper


    Commercial Paper Funding Facility


    Capital Purchase Program


    Cost-pressure scenario


    European Commission


    European Central Bank


    Export Development Corporation


    Expected default frequency


    Expected default frequency implied credit default swap


    European System of Accounts


    Exchange Stabilization Fund


    European Union


    Federal Deposit Insurance Corporation


    Federal Housing Administration


    Financial Stability Plan


    Group of 20 countries


    Government Accountability Office


    Gross domestic product


    Government Finance Statistics Manual


    Government-sponsored enterprise


    Japan Deposit Insurance Corporation


    Loss given default


    London interbank offered rate


    Mortgage-backed securities


    Money Market Investor Funding Facility


    Mid-Year Economic and Fiscal Outlook


    Organization for Economic Cooperation and Development


    Office of Management and Budget


    Pension Benefit Guaranty Corporation


    Primary Dealer Credit Facility


    Public-Private Investment Fund


    Personal income tax


    Pension Protection Fund


    Purchasing power parity


    Public-Private Investment Program


    Purchase and resale agreement


    Royal Bank of Scotland


    Residential mortgage-backed securities


    Small and medium-sized enterprise


    Swedish National Debt Office


    Term Auction Facility


    Term Asset-Backed Securities Loan Facility


    Troubled Asset Relief Program


    Temporary Liquidity Guarantee Program


    Value-added tax


    World Economic Outlook

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