In 1995, world economic growth weakened slightly to 3½ percent, which is marginally below both its long-term trend rate and the projection published in the October 1995 World Economic Outlook (see Table 1). This slight change in overall growth performance, however, masks a significant slowing of growth in the industrial countries and among the developing countries of the Western Hemisphere, and improved performance in Africa (especially the CFA countries), the Middle East, and the countries in transition.5 Among the industrial countries, the slowdown in activity during 1995 was particularly marked in Germany, France, and a number of other countries in western Europe, while the poorer performance in the developing countries of the Western Hemisphere is essentially accounted for by output declines in Mexico. Argentina, and Uruguay. In the Asian developing countries, growth remained rapid although it moderated slightly, allaying concerns about overheating in some countries. Inflation remained low in industrial countries and declined significantly in developing countries and countries in transition. World trade again grew at more than double the rate of world output.
The ballooning of public debt in industrial countries over the past two decades of relative world peace and prosperity is unprecedented. Increasingly, this is a problem. Higher levels of government debt boost real interest rates, retard the accumulation of private capital, and limit gains in living standards. Perhaps most worrisome is that populations will age noticeably over the coming decades, exacerbating budgetary pressures because of pension and health care demands. As a result, future public debt paths on current policies appear unsustainable in most industrial countries. Most governments recognize the problems of persistently high deficits and debt; some progress with fiscal consolidation has been made; and further progress is expected over the latter part of the 1990s. Still, North American and most European countries have made only limited progress to date in putting their ratios of public debt to GDP on downward trajectories; and debt in Japan, which has been most concerned about the fiscal implications of its aging population, seems poised to rise sharply in the coming years.
The strengthening in the growth performance of many developing countries in recent years has reflected fundamental changes in economic policies. A major role has been played by fiscal policies, which have been re-oriented toward the objectives of a more stable macroeconomic environment, stronger domestic saving and investment, and market-oriented structural reform. This re-orientation has required not only greater discipline in containing fiscal imbalances but also a scaling back of the role of government in the economy to ensure that state intervention does not impede private sector development. Addressing fiscal imbalances has also facilitated economic liberalization and structural reform by reducing governments’ budgetary dependence on distortionary taxes and controls.
This paper presents for the approval of the Executive Board a draft borrowing agreement between Norges Bank and the Fund. On March 28, the Finance Minister of Norway announced that the Ministry of Finance and Norges Bank (the central bank of Norway) were exploring a possible Norwegian contribution of up to 30 billion Norwegian kroner (about US$4.5 billion or SDR 3 billion) of financial resources to the IMF to support the Fund’s ability to provide timely and effective balance of payments assistance to its members in the current crisis. Staff and Norges Bank representatives have now reached agreement on a draft borrowing agreement, the text of which is set forth in the Attachment (“the Agreement”).
Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Mr. Esteban Vesperoni
Are fiscal spillovers today as large as they were during the global financial crisis? How do they depend on economic and policy conditions? This note informs the debate on the cross-border impact of fiscal policy on economic activity, shedding light on the magnitude and the factors affecting transmission, such as the fiscal instruments used, cyclical positions, monetary policy conditions, and exchange rate regimes. The note assesses spillovers from five major advanced economies (France, Germany, Japan, United Kingdom, United States) on 55 advanced and emerging market economies that represent 85 percent of global output, looking at government-spending and tax revenue shocks during expansion and consolidation episodes. It finds that fiscal spillovers are economically significant in the presence of slack and/or accommodative monetary policy—and considerably smaller otherwise, which suggests that spillovers are large when domestic multipliers are also large. It also finds that spillovers from government-spending shocks are larger and more persistent than those from tax shocks and that transmission may be stronger among countries with fixed exchange rates. The evidence suggests that although spillovers from fiscal policies in the current environment may not be as large as they were during the crisis, they may still be important under certain economic circumstances.
With the collapse of central planning, the transition countries confronted daunting fiscal challenges.63 The key objective for economic policy was to transform the role of the state in support of market-based economic systems, and fiscal policy had a leading role in reducing the share of output claimed by the public sector and in the reform of transfers to households and enterprises. In addition, fiscal policy, together with monetary and exchange rate policies, had to ensure a reasonable degree of macroeconomic stability. Continued instability would jeopardize the transition to a market economy because of the distorted relative price signals and poor incentives associated with rapid inflation. Macroeconomic stabilization was also essential to foster adequate levels of saving and investment, especially given the need to replace the substantial share of the capital stock that was obsolete.
The World Economic Outlook, published twice a year in English, French, Spanish, and Arabic, presents IMF staff economists analyses of global economic developments during the near and medium term. Chapters give an overview of the world economy; consider issues affecting industrial countries, developing countries, and economies in transition to market; and address topics of pressing current interest. Annexes, boxes, charts, and an extensive statistical appendix augment the text.