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Mr. José M. Barrionuevo
The purpose of this paper is to present a model that circumvents the requirement of explicitly setting a period in which the fiscal budget is to be balanced, yet implies that increases in the growth of public debt are bound to increase inflation when there is no perceived commitment to reduce the fiscal deficit. The model is based on a modified version of the cash in advance constraint. The results of numerical simulations suggest that an increase in the growth of debt to finance current consumption leads to an equal increase in inflation. The timing of this increase varies with the size of the deficit and the pace of economic growth. It is shown that small increases in small deficits yield fairly significant increases in inflation. Three policy conclusions are offered.
Mr. Shigeru Iwata and Mr. Andrew Feltenstein
This paper examines possible ways for a developing country to finance budget deficits from domestic resources. It does so by analyzing Pakistan's National Savings Scheme (NSS). The NSS has a number of unusual attributes, and its impact upon the economy of Pakistan is not clear, but given Pakistan's chronic fiscal difficulties, the NSS is of great importance in financing the public sector deficit. We use an econometric model to analyze the relationship between the demands for NSS deposits and various other financial instruments, in particular, bank deposits, and foreign-currency deposits. We conclude that NSS and bank deposits are net substitutes, as are NSS and foreign-currency deposits. Bank deposits and foreign-currency deposits, however, seem to be neither substitutes nor complements. Also, the estimated income elasticity of the demand for bank deposits is negative, while that of foreign-currency deposits is positive, and that of NSS is not significantly different from zero. Finally, there is evidence that foreign-currency deposits are a net substitute for NSS deposits. Thus, there is some empirical evidence that foreign currency deposits have absorbed part of the demand for NSS deposits. Accordingly, the availability of foreign-currency deposits may have reduced the ability of the government to finance itself.
International Monetary Fund

This Selected Issues paper and Statistical Appendix analyzes recent trends in poverty and social indicators for Zimbabwe. It discusses land reform, agricultural policies, and the outcomes. The paper presents background information on the evolution of inflation and money aggregates in Zimbabwe. It analyzes the demand of money since the late 1990s, and discusses factors that can lead to diverging paths of inflation and money growth in the short term. The paper also analyzes Zimbabwe’s export performance in recent years, and identifies the factors that could improve export performance, from both a quantitative and qualitative perspective.

International Monetary Fund. Research Dept.

This paper is a report made to the Government of India by a Fund mission which, at the request of the Government, visited India in February-March 1953. The members of the mission were Messrs. E. M. Bernstein (Director of the Research Department), Richard B. Goode, Morris Friedberg, and I. G. Patel.

Ms. Rina Bhattacharya, Mr. Benedict J. Clements, Mr. Sanjeev Gupta, Mr. Shamsuddin Tareq, Mr. Alex Segura-Ubiergo, and Mr. Todd D. Mattina


The challenges facing postconflict countries can be gauged by the economic conditions confronting them in the aftermath of a conflict.1 Figures 3.1 to 3.6 present information, to the extent that data are available, on macroeconomic and fiscal conditions in 14 countries and territories with conflict episodes from 1990–2003: the Islamic Republic of Afghanistan, Albania, Bosnia and Herzegovina, Cambodia, Democratic Republic of the Congo, Croatia, Lebanon, Liberia, Mozambique, Rwanda, Serbia and Montenegro, Sierra Leone, Tajikistan, and the Republic of Yemen.2

International Monetary Fund

Latvia's economy has emerged from the recession triggered by the Russian crisis. Executive Directors commended the strong economic growth and low inflation. They appreciated the open and liberal trade system and the soundness of the banking system. They emphasized the need to maintain fiscal and monetary policies, and accelerate structural reforms. They urged the authorities to implement reforms to improve private sector development, increase foreign direct investment, enhance governance, and also to privatize state-owned enterprises, and approved a Stand-By Arrangement for the country.


It has often been argued that many developing countries, in their pursuit of growth through capital accumulation, may have no choice but to run fiscal deficits in order to finance their development expenditures. The reasons given are: (a) that their tax bases are inadequate to allow a high tax burden; (b) that even when adequate tax bases are available, the countries’ tax administrations are too inefficient to take advantage of them; or (c) that, in any case, the political realities are such that high tax burdens are not possible.1 In the absence of developed capital markets or external borrowing, these fiscal deficits are often financed wholly or partly by central banks (i.e., through money creation). This printing of money brings about increases in the general price level and thus reduces the real value of the monetary unit. This reduction can be seen, as Friedman and Bailey showed many years ago, as a kind of tax on those who are holding money.2