World Economic and Financial Surveys

Title Page

World Economic and Financial Surveys

Fiscal Monitor

April 2018

Capitalizing on Good Times


©2018 International Monetary Fund

Cover: IMF Multimedia Services Division

Composition: AGS, An RR Donnelley Company

Cataloging-in-Publication Data

Joint Bank-Fund Library

Names: International Monetary Fund.

Title: Fiscal monitor.

Other titles: World economic and financial surveys, 0258-7440

Description: Washington, DC : International Monetary Fund, 2009- | Semiannual | Some issues also have thematic titles.

Subjects: LCSH: Finance, Public—Periodicals. | Finance, Public—Forecasting—Periodicals. | Fiscal policy—Periodicals. | Fiscal policy—Forecasting—Periodicals.

Classification: LCC HJ101.F57

ISBN: 978-1-48433-3952 (paper)

978-1-48434-9946 (ePub)

978-1-48434-9977 (Mobi)

978-1-48434-9724 (PDF)

Disclaimer: The Fiscal Monitor is a survey by the IMF staff published twice a year, in the spring and fall. The report analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies to put public finances on a sustainable footing. The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on September 21, 2017. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.

Recommended citation: International Monetary Fund (IMF). 2018. Fiscal Monitor: Capitalizing on Good Times. Washington, April.

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  • Assumptions and Conventions

  • Preface

  • Executive Summary

  • Chapter 1. Saving for a Rainy Day

    • Introduction

    • Recent Developments and Outlook

    • Advanced Economies: Resting on Laurels

    • Emerging Market and Middle-Income Economies: Progress, but Not Enough

    • Low-Income Developing Countries: Vulnerabilities Drifting Upward

    • Risks to the Fiscal Outlook

    • Saving for a Rainy Day

    • Structural Fiscal Policies to Buttress Growth

    • Box 1.1. Private Debt and Its Discontents

    • Box 1.2. The Distributional Effects of Income Tax Cuts in the United States

    • Box 1.3. International Tax Policy Implications from US Corporate Tax Reform

    • Box 1.4. General Government Debt and Fiscal Risks in China

    • References

  • Chapter 2. Digital Government

    • Introduction

    • The Digital Transformation of Governments

    • What Governments Can Do Now: Same Policies, Better Implementation

    • Addressing New Challenges

    • What Stands in the Way: Lessons from Country Experience

    • Policy Implications and Conclusions

    • Box 2.1. Digitalization Advances in Revenue Administration in South Africa and Estonia

    • Box 2.2. Digitalization and Property Taxation in Developing Economies

    • Box 2.3. Digitalizing Government Payments in Developing Economies

    • Box 2.4. Using Real-Time Fiscal Data to Upgrade Macroeconomic Surveillance Systems

    • Box 2.5. Small Business Taxation and the P2P Economy

    • Annex 2.1. The Digitalization of Public Finances: Country Case Studies

    • Annex 2.2. Estimating the Impact of Digitalization on Tax Evasion from Cross-Border Fraud

    • Annex 2.3. Estimating the Distribution of Tax Revenue Collection from Offshore Income and Wealth following Improved Cross-Country Information Exchange

    • References

  • Country Abbreviations

  • Glossary

  • Methodological and Statistical Appendix

    • Data and Conventions

    • Fiscal Policy Assumptions

    • Definition and Coverage of Fiscal Data

      • Table A. Economy Groupings

      • Table B. Advanced Economies: Definition and Coverage of Fiscal Monitor Data

      • Table C. Emerging Market and Middle-Income Economies: Definition and Coverage of Fiscal Monitor Data

      • Table D. Low-Income Developing Countries: Definition and Coverage of Fiscal Monitor Data

    • List of Tables

      • Advanced Economies (A1–A8)

      • Emerging Market and Middle-Income Economies (A9–A16)

      • Low-Income Developing Countries (A17–A22)

      • Structural Fiscal Indicators (A23–A25)

  • Fiscal Monitor, Selected Topics

  • IMF Executive Board Discussion Summary

  • Figures

    • Figure 1.1. General Government Debt

    • Figure 1.2. General Government Primary Balance

    • Figure 1.3. General Government Debt in 2017 Compared with Debt at Time of Fiscal Crises

    • Figure 1.4. General Government Debt Levels in 2017 and Debt Ceilings under Fiscal Rules

    • Figure 1.5. General Government Debt and Fiscal Stabilization

    • Figure 1.6. Distribution of Debt-to-GDP Ratios, 2000–17

    • Figure 1.7. General Government Debt in Countries That Received Debt Relief under the Heavily Indebted Poor Countries Initiative

    • Figure 1.8. General Government Debt Including Implicit Liabilities from Pension and Health Care Spending, 2017

    • Figure 1.9. Low-Income Developing Countries: Interest Expense as a Share of Tax Revenue and Total Expenditure

    • Figure 1.10. Low-Income Developing Countries: Share of Nonconcessional Financing

    • Figure 1.11. Foreign-Currency-Denominated General Government Debt, 2017

    • Figure 1.12. Advanced Economies: General Government Net and Gross Investment in Nonfinancial Assets, 2016 or Latest

    • Figure 1.13. Advanced Economies: Change in Primary Balance

    • Figure 1.14. Advanced Economies: Change in Total Expenditure, 2012–17

    • Figure 1.15. Emerging Market and Middle-Income Economies: General Government Revenue

    • Figure 1.16. Emerging Market and Middle-Income Economies: Change in Expenditure Categories, 2012–17

    • Figure 1.17. Low-Income Developing Countries: Change in Expenditure Categories, 2012–17

    • Figure 1.18. Low-Income Developing Countries: Change in Government Secondary Education Spending and Outcome, 2012–15

    • Figure 1.19. Low-Income Developing Countries: General Government Revenue

    • Figure 1.20. Low-Income Developing Countries: General Government Debt, 2007–23

    • Figure 1.21. Real GDP per Capita Growth, 1970–2023

    • Figure 1.22. Value-Added Tax, Compliance, and Policy Gaps

    • Figure 1.23. Public Investment Trends and Efficiency

    • Figure 1.24. Public Investment Management Assessment (PIMA) Scores: Institutional Framework and Effectiveness

    • Figure 1.25. Government Social Spending and Outcome, Latest Year Available

    • Figure 1.1.1. Global Debt

    • Figure 1.1.2. Nonfinancial Private Debt, by Income Group

    • Figure 1.2.1. Long-Run General Equilibrium Estimates of the Change in US Consumption, by Quintile

    • Figure 1.2.2. Static Estimates by the Tax Policy Center of the Change in After-Tax Income, by Quintile

    • Figure 1.3.1. US Central Government Corporate Tax Rate, 1990–2018

    • Figure 1.4.1. Broader Perimeters of General Government Could Help Provide a Better Understanding of China’s Fiscal Risks

    • Figure 1.4.2. Local Government Financing Vehicle Spreads Rose Slightly in 2017 after a Series of Government Measures

    • Figure 1.4.3. Deteriorating Performance among Local Government Financing Vehicles

    • Figure 2.1. Access to Public and Digital Services in Developing Countries

    • Figure 2.2. Government Digitalization

    • Figure 2.3. Selected Areas of Government Digitalization

    • Figure 2.4. Digital Government across Regions

    • Figure 2.5. Taxes on International Trade, 2015

    • Figure 2.6. The Missing Trader and Carousel Fraud

    • Figure 2.7. Trade Gap Ratios, 2016

    • Figure 2.8. Potential Revenue Gains from Closing Half the Distance to the Digitalization Frontier, 2016

    • Figure 2.9. Estimated Wealth of Europeans in Low-Tax Jurisdictions

    • Figure 2.10. Offshore Wealth and Revenue Potential, 2016

    • Figure 2.11. Non–Take-Up and Leakage—An Analytical Framework

    • Figure 2.12. Sources of Leakage and Non–Take-Up

    • Figure 2.13. Leakage and Take-Up in Social Income Support Programs

    • Figure 2.14. Digital Solutions and Leakage Issues

    • Figure 2.15. Digital Solutions Can Help Address Take-Up Issues

    • Figure 2.16. Global Top 20 Firms, By Stock Market Capitalization

    • Figure 2.17. Indicators of Relative Intensity in the Use of Intangibles

    • Figure 2.18. The Digital Divide

    • Figure 2.1.1. Use of Electronic Transactions

    • Figure 2.2.1. Average Property Tax Revenue

    • Figure 2.3.1. Savings from Digitalizing Government Payments

    • Figure 2.4.1. United States: Nowcasting Economic Activity

    • Figure 2.5.1. Average Income from Airbnb, by Country versus Indirect Tax Thresholds

  • Tables

    • Table 1.1. General Government Debt, 2012–23

    • Table 1.2. Average Term to Maturity of Outstanding Debt

    • Table 1.3. Selected Advanced Economies: Gross Financing Need, 2018–20

    • Table 1.4. Selected Emerging Market and Middle-Income Economies: Gross Financing Need, 2018–19

    • Table 1.5. General Government Fiscal Balance, 2012–23: Overall Balance

    • Table 1.6. Selected Advanced Economies: Fiscal Stance for 2018 and the Medium Term

    • Table 1.7. Selected Emerging Market and Middle-Income Economies: Fiscal Developments in 2017

    • Table 1.8. Selected Emerging Market and Middle-Income Economies: Fiscal Stance in 2018 and the Medium Term

    • Table 1.1.1. Global Debt

    • Table 2.3.1. Sources of Savings from Digitalizing Government Payments

    • Annex Table 2.2.1. Pairwise Correlations of Digitalization Indices

    • Annex Table 2.2.2. Data Sources

    • Annex Table 2.2.3. Trade Gap Regressions Using Intra-EU and All Partners Trade Data

    • Annex Table 2.2.4. Median Revenue Gains per Country Group from Closing Half the Distance to the Digitalization Frontier, 2016

    • Annex Table 2.3.1. Median Offshore Wealth and Revenue Potential, 2016

Editor’s Note (May 25, 2018)

The online edition of this report has been updated to reflect the following changes to the print edition:

  • The definition of FISCO has been updated in the footnote of Figure 1.5.

  • The in-text reference to Figure 1.5 has been updated.

  • The definition of FISCO has been updated in the Glossary.

Assumptions and Conventions

The following symbols have been used throughout this publication:

… to indicate that data are not available

—to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist

– between years or months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months

/ between years (for example, 2008/09) to indicate a fiscal or financial year

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

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

“n.a.” means “not applicable.”

Minor discrepancies between sums of constituent figures and totals are due to rounding.

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.

Further Information

Corrections and Revisions

The data and analysis appearing in the Fiscal Monitor are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online tables of contents.

Print and Digital Editions

Print copies of this Fiscal Monitor can be ordered at https://www.bookstore.imf.org/books/title/fiscal-monitor-april-2018.

The Fiscal Monitor is featured on the IMF website at http://www.imf.org/publications/fm. This site includes a PDF of the report and data sets for each of the charts therein.

The IMF eLibrary hosts multiple digital editions of the Fiscal Monitor, including ePub, enhanced PDF, Mobi, and HTML: http://elibrary.imf.org/Apr18FM

Copyright and Reuse

Information on the terms and conditions for reusing the contents of this publication are at http://www.imf.org/external/terms.htm.


The projections included in this issue of the Fiscal Monitor are based on the same database used for the April 2018 World Economic Outlook and Global Financial Stability Report (and are referred to as “IMF staff projections”). Fiscal projections refer to the general government, unless otherwise indicated. Short-term projections are based on officially announced budgets, adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions. The medium-term fiscal projections incorporate policy measures that are judged by the IMF staff as likely to be implemented. For countries supported by an IMF arrangement, the medium-term projections are those under the arrangement. In cases in which the IMF staff has insufficient information to assess the authorities’ budget intentions and prospects for policy implementation, an unchanged cyclically adjusted primary balance is assumed, unless indicated otherwise. Details on the composition of the groups, as well as country-specific assumptions, can be found in the Methodological and Statistical Appendix.

The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director of the Department. The project was directed by Abdelhak Senhadji, Deputy Director; and Catherine Pattillo, Assistant Director. The main authors of this issue are Laura Jaramillo Mayor (team leader), Paolo Dudine, Klaus Hellwig, Raphael Lam, Victor Duarte Lledó, and Elif Ture for Chapter 1, which also benefited from contributions by Kyungla Chae, Ruud De Mooij, Michael Keen, Alexander Klemm, Paolo Mauro, Samba Mbaye, Marialuz Moreno Badia, Adrian Peralta-Alva, and Victoria Perry; Geneviève Verdier (team leader), Aqib Aslam, Maria Coelho, Emine Hanedar, João Jalles, Emmanouil Kitsios, Raphael Lam, Adrian Peralta-Alva, and Delphine Prady for Chapter 2, which also benefited from contributions from Ruud De Mooij, Martin Grote, Michael Keen, Toni Matsudeira, Florian Misch, Alpa Shah, and Mick Tackray. Excellent research contributions were provided by Mark Albertson, Kyungla Chae, and Young Kim. The Methodological and Statistical Appendix was prepared by Young Kim. Nadia Malikyar and Erin Yiu provided excellent coordination and editorial support. Linda Kean from the Communications Department led the editorial team and managed the report’s production, with production assistance from Rumit Pancholi and editorial assistance from Lorraine Coffey, Susan Graham, Lucy Scott Morales, Nancy Morrison, and Vector Talent Resources.

Inputs, comments, and suggestions were received from other departments in the IMF, including area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department—as well as the Communications Department, Institute for Capacity Development, Legal Department, Monetary and Capital Markets Department, Research Department, Secretary’s Department, Statistics Department, and Strategy, Policy, and Review Department. The Fiscal Monitor also benefited from comments by Matthew Salomon (Global Financial Integrity); Eric Toder (Tax Policy Center); Catherine Tucker (MIT); and Rita Almeida, Rajul Awasthi, Cem Dener, Zahid Hasnain, Philippe Leite, and Kee Hiau Looi (all World Bank). Both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.

Executive Summary

Chapter 1: Saving for a Rainy Day

Strong and broad-based growth provides an opportunity to begin rebuilding fiscal buffers now, improve government balances, and anchor public debt. Strengthening fiscal buffers in the upswing will create room to provide fiscal support in an eventual downturn and will prevent fiscal vulnerabilities from becoming a source of stress if financial conditions deteriorate.

High Debt Is a Concern

Global debt is at historic highs, reaching the record peak of US$164 trillion in 2016, equivalent to 225 percent of global GDP. The world is now 12 percent of GDP deeper in debt than the previous peak in 2009, with China as a driving force.

Public debt plays an important role in the surge in global debt, reflecting the economic collapse during the global financial crisis and the policy response, as well as the effects of the 2014 fall in commodity prices and rapid spending growth in the case of emerging markets and low-income developing countries. Debt in advanced economies is at 105 percent of GDP on average—levels not seen since World War II. In emerging market and middle-income economies, debt is close to 50 percent of GDP on average—levels last seen during the 1980s debt crisis. For low-income developing countries, average debt-to-GDP ratios have been climbing at a rapid pace and exceed 40 percent as of 2017. Moreover, nearly half of this debt is on nonconcessional terms, which has resulted in a doubling of the interest burden as a share of tax revenues in the past 10 years. Underpinning debt dynamics for all countries are large primary deficits, which reached record levels in the case of emerging market and developing economies.

High government debt and deficits are cause for concern. Countries with elevated government debt are vulnerable to a sudden tightening of global financing conditions, which could disrupt market access and put economic activity in jeopardy. Moreover, experience shows that countries can be subject to large, unexpected shocks to public debt-to-GDP ratios, which would exacerbate rollover risks. It is important to note that large debt and deficits hinder governments’ ability to implement a strong fiscal policy response to support the economy in the event of a downturn. Historical experience shows that a weak fiscal position increases the depth and duration of recession—such as in the aftermath of a financial crisis—because governments are unable to deploy sufficient fiscal policy to support growth. Building fiscal room to maneuver is especially relevant now that private sector debt is at record highs and rising. Excessive private debt in some countries puts them at risk of an abrupt and costly deleveraging process.

Enhancing Resilience and Buttressing Growth

Decisive action is needed now to strengthen fiscal buffers, taking full advantage of the cyclical upswing in economic activity. As growth returns to its potential, fiscal stimulus loses its effectiveness while the cost of fiscal consolidation diminishes, making it easier to switch from fiscal expansion to fiscal consolidation. It is important to note that building buffers now will help protect the economy, both by creating room for fiscal policy to step in to support economic activity during a downturn and by reducing the risk of financing difficulties if global financial conditions tighten suddenly. In general, countries should allow automatic stabilizers (that is, tax and spending that moves in sync with output and employment) to operate fully, while making efforts to put deficits and debt firmly on a downward path toward their medium-term targets.

The size and pace of adjustment need to be calibrated to each country’s cyclical conditions and available fiscal space to avoid an undue drag on growth. In economies operating at or near potential output and where debt to GDP is at high levels, fiscal adjustment should be implemented. In the United States—where a fiscal stimulus is happening when the economy is close to full employment, keeping overall deficits above $1 trillion (5 percent of GDP) over the next three years—fiscal policy should be recalibrated to ensure that the government debt-to-GDP ratio declines over the medium term. Where fiscal space is limited, there is little choice but to undertake consolidation efforts to reduce fiscal risks, based on policies that will support medium-term growth. A few advanced economies that have ample fiscal space and are operating at or close to capacity have room for using fiscal policy to facilitate the implementation of pro-growth structural reforms. Despite the recent partial recovery in commodity prices, commodity exporters should continue to adjust to ensure that spending is aligned with medium-term revenue prospects. Several low-income countries need to make room in their budgets to accommodate the implementation of infrastructure plans by mobilizing revenues, rationalizing spending, and improving spending efficiency.

At the same time, all countries need to keep their sights on policies to lift their medium-term growth outlook. Indeed, recent fiscal adjustment in some countries has not necessarily prioritized growth-friendly measures, as illustrated by the decline in public investment spending as a share of GDP among advanced economies and commodity exporters. Advanced economies should focus on seeking efficiency gains in spending and rationalizing entitlements to make room for more public investment, incentives for labor market participation, and improvements in the quality of education and health services. Some advanced economies would also benefit from broadening tax bases and upgrading the design of their tax systems. For emerging market and developing economies, the priority is to raise revenue to finance critical spending on physical and human capital and social spending. All countries should promote inclusive growth to avoid excessive inequality that can impede social mobility, erode social cohesion, and ultimately hurt growth.

Chapter 2: Digital Government

The world is becoming digital and so are governments, albeit at sharply different paces. Almost all country governments now have national websites and automated financial management systems. Digitalization presents both opportunities and challenges for fiscal policy. How can digitalization change the design and implementation of policies now and in the future? And what stands in the way?

Greater availability and access to timely and reliable information can transform how governments operate. Digitalization can reduce the private and public costs of tax compliance and can improve spending efficiency. For example, governments can use digital tools to tackle cross-border fraud—adopting digital tools could increase indirect tax collection at the border by up to 1–2 percent of GDP per year. Digitalization could also help governments track down taxes on wealth sheltered in low-tax jurisdictions, estimated at an average of 10 percent of world GDP. Although the potential revenue gains from this traditionally inaccessible tax base are low at current tax rates, digitalization could facilitate future tax collection on income at the source before it escapes the reach of tax authorities. On the spending side, the experiences of India and South Africa show how digitalization can help improve social protection and the delivery of public services.

In the future, the increasing digitalization of businesses—and the emergence of digital giants such as Google, Apple, Facebook, and Amazon—may exacerbate challenges faced by the current international tax system. Digitalization raises new questions, such as how commercially valuable information generated by users of online services should affect taxing rights of countries. Should aspects of destination—that is, where the final consumers reside—play a more prominent role in assigning taxing rights? Efforts to modify the international tax framework should preferably be coordinated and consistent with a long-term vision for the international tax architecture.

Governments will need to mitigate new digital risks. Digital interactions with governments may impose a disproportionate burden on small businesses and vulnerable households with limited access to technology. Digitalization itself also creates new opportunities for fraud and disruption of government functions. This includes the use of digital means to evade taxes or illegally claim benefits. Massive data breaches and intrusions of privacy have increased, highlighting the vulnerabilities of public digital systems.

Digitalization is not a panacea. It calls for a pro-active, forward-looking, and comprehensive reform agenda. Governments must address multiple political, social, and institutional weakness and manage digital risks. They must also budget adequate resources to finance investments in digital infrastructure and cybersecurity. Last but not least, digitalization makes international cooperation even more necessary.

But digitalization is already an overwhelming trend. It is likely to accelerate further. Governments can try to resist it and adapt late and reluctantly; or they can embrace it, foresee it, and even, to some extent, shape it.