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Business and Economics > Public Finance

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Cover Departmental Papers
Long-Term Spending Pressures in Europe
Stephanie Eble
,
Alexander Pitt
,
Irina Bunda
,
Oyun Erdene Adilbish
,
Nina Budina
,
Gee Hee Hong
,
Moheb T Malak
,
Sabiha Mohona
,
Alla Myrvoda
, and
Keyra Primus
European countries face high, rising, and long-lasting spending pressures, calling for a renewed focus on fiscal policy and comprehensive structural reforms to prepare their economies for the future. On top of existing fiscal consolidation needs, spending pressures in five key areas are imminent and growing in Europe: pensions and healthcare/long-term care driven by population aging; climate transition; increased defense spending; and higher borrowing costs. Some pressures are immediate, others will build up over time. Projections indicate that additional expenditures could reach 5¾ percent of GDP annually by 2050 in Advanced Europe and 8 percent in Central, Eastern, and Southeastern Europe (CESEE). Addressing these challenges will require extensive efforts, including enhancing institutional capacity and implementing deep structural reforms to manage spending, ensure adequate revenue, and meet environmental, social, and security objectives. Policymakers must also consider the distributional impacts of reforms, particularly on vulnerable households. A broad reform agenda tailored to country circumstances is essential, with urgent actions needed in many countries to ensure the sustainability of pension systems and to combat climate change through fiscal instruments like carbon pricing. Increased revenue mobilization, particularly in CESEE, and the reduction of inefficient spending are critical for creating fiscal space for priority expenditures. Strengthening the EU's fiscal capacity to provide common public goods such as climate, defense, energy security, and R&D and implementing structural reforms to enhance growth potential are also vital. However, raising awareness of these issues and implementing the necessary reforms will be challenging. A well-designed fiscal framework that incorporates long-term spending pressures, supported by comprehensive analysis and data, is crucial for informing public debate and guiding national decision-making to ensure that spending pressures are adequately addressed. Ultimately, inaction is not an option, as it risks fiscal sustainability and the fulfillment of priority spending needs.
Keywords:
Fiscal policy; structural reforms; climate; defense; demographics; aging; health; public debt; fiscal institutions; spending pressure; member states; EU climate goal; increase EU resilience; emissions trading system; EU financing; EU rule; carbon border adjustment mechanism; EU budget; EU country; climate goal; spending needs; Pension spending; Defense spending; Pensions; Europe; priority spending needs; data from European Union; inefficient spending; long-term spending pressure
Cover Technical Assistance Reports
The Gambia: Technical Assistance Report-Public Investment Management Assessment Update with the Climate Module
International Monetary Fund. Fiscal Affairs Dept.
The IMF’s Fiscal Affairs Department (FAD) conducted a Public Investment Management Assessment (PIMA) and Climate Module (C-PIMA) for The Gambia to assess public investment management (PIM) and its climate sensitivity. The assessment found improvements since the 2019 PIMA, including the 2020 Cabinet Memorandum for strategic project reviews, the 2023 SOE Act for centralized oversight, and enhanced procurement regulations. However, despite these institutional improvements, effectiveness has yet to catch up and, in some cases, has weakened. Climate resilience is also insufficiently addressed, with weak integration of climate risks into project planning and outdated regulatory frameworks. Key recommendations include establishing a public investment management information system, strengthening PIM oversight within the Ministry of Finance, formalizing project selection pipelines, and embedding climate-related criteria in investment decisions.
Keywords:
The Gambia; investment; PIM; PIMA; Climate; Climate Module; C-PIMA.; management institution; procurement authority; IMF climate policy diagnostic; capital cash outlay; D. investment allocation; climate PIMA; Public investment spending; Climate change; Budget planning and preparation; Infrastructure; West Africa; Sub-Saharan Africa; Global
Cover Global Financial Stability Notes
Pension Funds and Financial Stability
This Global Financial Stability Note examines the growth of the pension fund sector and the potential financial stability implications. Historically, pension funds have been seen as a contributor to financial stability because of their long-term and well-diversified liabilities. However, the sector has undergone significant structural shifts accelerated by a prolonged period of low interest rates, increasing its exposure to traditional risks while introducing emerging risks; this is reflected in growing intra-financial sector interconnectedness and exposure to long-term sovereign bonds. The recent transition to higher interest rates should be positive for the pension sector, albeit its pace and abruptness has been associated with liquidity stress and contagion risks in some countries.
Keywords:
Pension Funds; Financial Stability; Assets; Risks; Pension Plans; major pension fund sector; IMF Library; major pension savings market; structural liquidity; asset-liability duration mismatch; risk analysis; Pension spending; Pensions; Financial sector stability; Liquidity risk; Global
Cover IMF Staff Country Reports
Thailand: Selected Issues
International Monetary Fund. Asia and Pacific Dept
2024 Selected Issues
Keywords:
fan chart; household debt; Thailand's debt ceiling; public debt debt ceiling; estimates of debt limits; Debt limits; Consumer credit; Loans; Consumer loans; Global; Eastern Europe
Cover IMF Working Papers
Government Debt and Growth: The Role of R&D
Can Sever
Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising. The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena. This paper aims to offer insight into the high-debt low-growth environment in AEs by exploring a causal link from government debt to future growth, specifically through the impact of debt on R&D activities. Using data from manufacturing industries since the 1980s, it shows that (i) government debt leads to a decline in growth, particularly in R&D-intensive industries; (ii) the differential effect of government debt on these industries is persistent; and (iii) more developed or open financial systems tend to mitigate this negative impact. These findings contribute to our understanding of the relationship between government debt and growth in AEs, given the role of technological progress and innovation in economic growth.
Keywords:
Government debt; fiscal policy; economic growth; R&D; innovation; financial development; economic growth in the advanced economies; R&D activity; impact of debt; debt level; affect tax dynamics; Financial sector development; Manufacturing; Productivity; Aging; Global
Cover Technical Assistance Reports
Slovak Republic: Technical Assistance Report-Next Phase of Spending Reviews
International Monetary Fund. Fiscal Affairs Dept.
Slovak Republic has made significant progress in institutionalizing spending reviews, having completed spending reviews covering 64 percent of total public spending since initiating the spending review project eight years ago. Despite progress, challenges remain, and important choices will need to be made going forward to enhance the budgetary impact of spending reviews. This may be done through more targeted spending reviews, a more comprehensive analysis of potential measures, strengthened coordination within the Ministry of Finance and with line ministries, as well as their better integration into the budget cycle.
Keywords:
Spending reviews; expenditure reviews; expenditure efficiency; value for money; budgeting; fiscal consolidation; Slovak Republic.; IMF FAD mission; IMF's Fiscal Affairs Department; instrumentalities of the TA recipient; World Bank staff; line ministry budget unit; Public expenditure review; Budget planning and preparation; Total expenditures
Cover IMF Staff Country Reports
Chile: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
2024 Selected Issues
Keywords:
input-output linkage; housing wealth effect; growth slowdown; real estate sector; risk assessment; Pension spending; Exports; Mortgages; Loans; Global; Eastern Europe
Cover IMF Staff Country Reports
Grenada: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Grenada
International Monetary Fund. Western Hemisphere Dept.
Through end-June 2024, Grenada’s economy was experiencing sustained strong growth supported by buoyant tourism, moderating inflation, and a narrowing current account deficit. A surge in Citizenship-by-Investment (CBI) revenue supported a strong improvement in budget balances, a build-up of government deposits, and a reduction in public debt. On July 1, Hurricane Beryl caused damage in excess of 16 percent of GDP on the Grenadian islands of Carriacou and Petite Martinique, as well as in the northern parishes of the main island, affecting around 15 percent of the population. In response, the authorities triggered the suspension of fiscal rules to permit temporary deficit spending in support of the recovery and reconstruction.
Keywords:
infrastructure investment facility; IIP source data; TA mission; CBI revenue; tourism infrastructure; CBI program; Natural disasters; Caribbean; Global
Cover IMF Working Papers
Social Security Reforms, Retirement and Sectoral Decisions
Bruno R. Delalibera
,
Pedro Cavalcanti Ferreira
, and
Rafael Machado Parente
In many countries, the regulations governing pension systems, hiring procedures, and job contracts differ between the public and private sectors. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a general equilibrium life-cycle model with heterogeneous agents, three sectors - private formal, private informal and public - and endogenous retirement. We quantitatively assess the long-run effects of reforms being discussed and implemented around the world. Among them, we study the unification of pension systems and increasing the minimum retirement age. We calibrate our model to Brazil, where several of the retirement conditions resemble those of other countries. We find that these reforms lower the likelihood of individuals to apply to a public job and increase the profile of savings over the life cycle. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit.
Keywords:
Social security reform; Public employment; Public deficit; Informality; reform experiment; retirement condition; social security deficit; retirement decision; Retirement; Aging; Public sector; East Asia; Global
Cover IMF Staff Country Reports
Albania: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Albania
International Monetary Fund. European Dept.
Albania is on track to be one of the fastest growing economies in Europe in 2024, underpinned by tourism and prudent macroeconomic policies. Despite this strong performance, GDP per capita stands at just around a quarter of the EU-15 level. The economy is also facing structural headwinds, stemming from rapid population aging, emigration, low productivity, and governance shortcomings.
Keywords:
EU convergence criteria; EU accession discussion; EU accession; Youth Guarantee program; EU standard; Exchange rates; Europe; Global