Chapter

Glossary

Author(s):
Philip Gerson, and Manmohan Kumar
Published Date:
November 2010
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Automatic stabilizers. Change in the cyclical balance.

CDS spreads. The spread on credit default swap (CDS) refers to the annual amount (in bps of the notional amount) that the protection buyer must pay the seller over the length of the contract to protect the underlying asset against a credit event.

Cyclical balance. Cyclical component of the overall fiscal balance, computed as the difference between cyclical revenues and cyclical expenditure. The latter are typically computed using country-specific elasticities of aggregate revenue and expenditure series with respect to the output gap. Where unavailable, standard elasticities (0,1) are assumed for expenditure and revenue, respectively.

Cyclically adjusted balance (CAB). Overall balance minus cyclical balance.

Cyclically adjusted (CA) expenditure and revenue. Revenue and expenditure adjusted for the effect of the economic cycle (i.e., net of cyclical revenue and expenditure).

CA primary balance (CAPB). Cyclically adjusted balance excluding net interest payments.

Expenditure elasticity. Elasticity of expenditure with respect to the output gap.

Fiscal stimulus. Discretionary fiscal policy actions adopted in response to the financial crisis.

General government. The general government sector consists of all government units and all nonmarket, nonprofit institutions that are controlled and mainly financed by government units comprising the central, state, and local governments. The general government sector does not include public corporations or quasi-corporations.

Gross debt. All liabilities that require future payment of interest and/or principal by the debtor to the creditor. This includes debt liabilities in the form of SDRs, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable. The term “public debt” is used in this Monitor, for simplicity, as synonymous with gross debt of the general government, unless otherwise specified. (Strictly speaking, the term “public debt” refers to the debt of the public sector as a whole, which includes financial and nonfinancial public enterprises and the central bank.)

Gross financing needs. Overall new borrowing requirement plus debt maturing during the year.

Net debt. Gross debt minus financial assets, including those held by the broader public sector: for example, social security funds held by the relevant component of the public sector, in some cases.

Output gap. Deviation of actual GDP from potential GDP, in percent of potential GDP.

Overall fiscal balance (also “headline” fiscal balance). Net lending/borrowing, defined as the difference between revenue and total expenditure, using the 2001 edition of the IMF’s Government Finance Statistics Manual (GFSM 2001). Does not include policy lending. For some countries, the overall balance continues to be based on GFSM 1986, which is defined as total revenue and grants minus total expenditure and net lending.

Primary balance. Overall balance excluding net interest payment (interest expenditure minus interest revenue).

Public debt. See gross debt.

Public sector. The public sector consists of the general government sector plus government-controlled entities, known as public corporations, whose primary activity is to engage in commercial activities.

RAS spreads. Relative Asset Swap (RAS) spreads measure the difference between benchmark government bond yields and the interest rate on the fixed-rate arm of an interest rate swap in the same currency and of the same maturity (usually 10 years) as the bond.

Revenue elasticity. Elasticity of revenue with respect to the output gap.

Appendix Table 1.Advanced Economies: Needed Fiscal Adjustment—An Illustrative Scenario (Gross Debt Target)(Percent of GDP)
Current WEO Projections, 2010Illustrative Fiscal Adjustment Strategy to

Achieve Debt Target in 2030
CycliallyCyclically AdjustedRequired Adjustment
Gross DebtPrimary BalanceAdjusted PBPB in 2020-30betw een 2010 and 2020
Australia21.9-4.3-4.10.34.4
Austria70.0-2.9-2.42.14.5
Belgium100.2-1.10.24.44.2
Canada81.7-4.5-3.02.55.5
Czech Republic40.1-3.9-3.11.24.3
Denmark44.2-4.3-2.91.24.1
Finland50.0-4.7-2.11.03.1
France84.2-5.8-4.33.27.5
Germany75.3-2.2-1.02.03.0
Greece1130.2-2.2-1.56.48.0
Hong Kong SAR0.61.5-1.0-0.40.7
Iceland115.6-2.78.72.4-6.2
Ireland99.4-29.3-6.65.311.9
Israel75.7-0.5-0.51.11.6
Italy118.4-0.80.74.53.8
Japan1225.8-8.2-6.56.413.0
Korea32.12.82.9-0.6-3.6
Netherlands66.0-4.2-3.92.26.1
New Zealand31.0-3.1-1.90.42.3
Norway154.38.69.49.40.0
Portugal83.1-4.1-3.03.06.0
Singapore100.41.70.02.92.9
Slovak Republic41.8-6.8-5.90.96.8
Slovenia34.5-4.5-2.80.63.4
Spain63.5-7.5-5.92.58.4
Sw eden41.7-3.2-0.70.31.0
Switzerland39.50.10.80.0-0.8
United Kingdom76.7-7.6-5.63.28.8
United States192.7-9.5-6.84.811.6
Average (PPP-weighted)97.3-6.4-4.53.88.3
G-20103.8-6.9-4.94.08.9
Higher Debt106.0-7.2-5.14.29.3
Lower Debt32.5-0.50.00.60.6
Sources: October 2010 WEO; and IMF staff estimates.Notes: The table reports gross debt; for some countries with sizable assets, net debt is considerably smaller. CA primary balances are reported in percent of nominal GDP (in contrast to the conventional definition in percent of potential GDP). General government data are used where available. In the illustrative fiscal adjustment strategy, the CAPB is assumed to improve in line with WEO projections in 2011-12 and gradually from 2013 until 2020; thereafter, it is maintained constant until 2030. The last column shows the CAPB adjustment needed to stabilize debt at the end-2012 level by 2030 if the respective debt-to-GDP ratio is less than 60 percent (no shading, “lower debt”); or to bring the debt ratio to 60 percent in 2030 (shaded entries, “higher debt”). The analysis is illustrative and makes some simplifying assumptions: in particular, up to 2015, an interest rate—growth rate differential of 0 percentage point is assumed, broadly in line with WEO assumptions, and 1 percentage point afterward regardless of country-specific circumstances.
Appendix Table 2.Emerging Economies: Needed Fiscal Adjustment—An Illustrative Scenario (Gross Debt Target)(Percent of GDP)
Current WEO Projections, 2010Illustrative Fiscal Adjustment Strategy to Achieve Debt Target in 2030
Gross DebtPrimary BalanceCyclically

Adjusted PB
Cyclically Adjusted

PB in 2020-30
Required Adjustment

between 2010 and 2020
Argentina52.2-0.1-0.11.01.1
Brazil66.83.33.21.5-1.7
Bulgaria18.2-4.6-2.50.93.4
Chile7.6-1.6-4.10.54.6
China19.1-2.4-2.60.43.0
Colombia35.7-1.5-1.30.61.9
Estonia8.1-0.92.40.7-1.7
Hungary78.4-0.52.53.40.8
India75.1-4.5-3.73.37.0
Indonesia26.70.10.30.2-0.1
Kenya52.1-4.3-3.51.34.8
Latvia42.2-10.5-6.40.36.6
Lithuania39.5-6.1-4.52.16.6
Malaysia55.1-2.9-3.92.76.6
Mexico45.1-1.7-1.00.91.9
Nigeria16.3-6.3-5.90.56.4
Pakistan58.7-1.8-1.81.02.8
Peru25.40.3-0.70.10.8
Philippines46.3-0.6-0.70.71.4
Poland55.2-4.5-4.32.56.8
Romania35.5-5.1-2.70.43.1
Russia11.1-4.3-2.50.63.0
Saudi Arabia112.92.13.06.53.5
South Africa35.0-3.2-2.60.22.8
Thailand44.6-1.9-1.80.92.8
Turkey43.40.1-0.70.20.9
Ukraine139.5-4.0-0.90.51.4
Average (PPP-weighted)37.4-2.1-1.81.23.0
G-2036.3-2.0-1.71.22.9
Sources: October 2010 WEO; and IMF staff estimates.Notes: In computing the primary balance, policy lending was excluded from primary expenditure. CA primary balances are reported in percent of nominal GDP. In the illustrative fiscal adjustment strategy, the CAPB is assumed to improve in line with WEO projections in 2011—12 and gradually from 2013 until 2020; thereafter, the CAPB is maintained constant until 2030. The last column shows the CAPB adjustment needed to stabilize debt at the end-2012 level by 2030 if the respective debt-to-GDP ratio is less than 40 percent; or to bring the debt-to-GDP ratio to 40 percent in 2030. The analysis is illustrative and makes some simplifying assumptions: in particular, up to 2015, an interest rate—growth rate differential of 0 percentage point is assumed, broadly in line with WEO assumptions, and 1 percentage point afterward regardless of country-specific circumstances. For large commodity producing countries, even larger fiscal balances might be called for in the medium term than shown in the illustrative scenario given the high volatility of revenues and the exhaustibility of natural resources.
Appendix Table 3.Advanced Economies: Illustrative Fiscal Adjustment (Net Debt Target)(Percent of GDP)
Required Adjustment
20072010between 2010 and 2020Difference
Net DebtGross DebtNet DebtGross DebtCyclically Adjusted

Primary Balance
With

Net Debt
With

Gross Debt
Assets-to-GDP

(Gross minus NeDebt)
Req adj (Gross Debt)

minus Req adj (Net Debt)
Australia-7.49.55.421.9-4.14.24.416.50.2
Austria48.759.259.970.0-2.44.84.510.1-0.3
Belgium73.382.891.4100.20.24.54.28.8-0.3
Canada23.165.132.281.7-3.03.85.549.51.7
Czech Republic
Denmark-3.834.10.344.2-2.93.74.143.90.4
Finland-72.635.2-40.750.0-2.12.23.190.70.9
France54.163.874.584.2-4.37.77.59.7-0.2
Germany50.164.958.775.3-1.02.93.016.70.2
Greece1
Hong Kong
Iceland11.029.375.6115.68.7-7.2-6.239.91.0
Ireland12.225.069.499.4-6.610.611.930.01.2
Israel72.977.771.075.7-0.52.21.64.7-0.6
Italy87.2103.599.0118.40.73.33.819.40.5
Japan181.5187.7120.7225.8-6.513.013.0105.10.0
Korea
Netherlands30.645.545.866.0-3.95.66.120.20.5
New Zealand-5.717.43.231.0-1.92.12.327.90.2
Norway1-142.558.6-152.354.39.40.00.0206.60.0
Fbrtugal58.162.778.983.1-3.06.76.04.2-0.7
Singapore
Slovak Republic
Slovenia
Spain26.536.154.163.5-5.98.78.49.4-0.3
Sweden-17.140.1-12.741.7-0.70.51.054.50.5
Switzerland43.343.637.839.50.8-0.8-0.81.70.0
United Kingdom38.243.968.876.7-5.69.28.87.8-0.4
United States142.462.165.892.7-6.810.511.627.01.0
Average (PPP-weighted)45.375.467.3101.2-4.98.48.933.90.5
G-2049.680.072.5107.1-5.28.99.534.60.6
Median:46.264.367.382.9-4.26.06.518.00.2
Higher Debt51.179.374.8106.8-5.29.09.532.00.5
Lower Debt-5.542.12.252.4-1.72.83.550.10.8
Sources: October 2010 WEO; and IMF staff estimates.Notes: Net debt simulations assume a target of 45 percent of GDP, broadly in line with the pre-cnsis (2007) median in advanced G-20 countries or to stabilize debt at the end-2012 level by 2030 if the net debt-to-GDP ratio is less than 45 percent. For gross debt simulations, see notes to Appendix Table 1. The methodology for computing the required adjustment is described in the notes for Appendix Table 1 (shading corresponds to countries with “higher debt”). The country averages differ slightly from those depicted in Appendix Table 1 because the country sample here is smaller on account of missing data.

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