Front Matter

Front Matter

International Monetary Fund. Fiscal Affairs Dept.
Published Date:
April 2011
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    ©2011 International Monetary Fund

    Production: IMF Multimedia Services Division

    Typesetting: Maria Delariarte and Nadia Malikyar

    Cataloging-in-Publication Data

    Fiscal monitor—Washington, D.C. : International Monetary Fund, 2009—

    • v. ; cm. — (World economic and financial surveys, 0258-7440)

    • Twice a year.

    • Some issues have also thematic titles.

    • 1. Finance, Public—Periodicals. 2. Finance, Public—Forecasting—Periodicals. 3. Fiscal policy—Periodicals. 4. Fiscal policy—Forecasting—Periodicals. 5. Financial crises—Periodicals. 6. Global Financial Crisis, 2008—2009—Periodicals. I. International Monetary Fund. II. Series: World economic and financial surveys.

    • HJ101.F57

    Disclaimer: This publication should not be reported as representing the views or policies of the International Monetary Fund. The views expressed in this work are those of the authors and do not necessarily represent those of the IMF, its Executive Board, or its management.

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    The projections included in this Fiscal Monitor are based on the same database used for the April 2011 World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) (and are referred to as “IMF staff projections”). The fiscal projections refer to the general government unless otherwise indicated. Short-term fiscal 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 where 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. Country-specific assumptions are detailed in the Methodological and Statistical Appendix, which precedes the Statistical Tables. This issue of the Fiscal Monitor includes a new table (Statistical Table 9) on structural fiscal indicators.

    The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the supervision of Carlo Cottarelli, Director of the Department, and Philip Gerson, Senior Advisor. This issue is coordinated by Manmohan S. Kumar and Paolo Mauro. Principal contributors include Giovanni Callegari, Timothy Irwin, Laura Jaramillo Mayor, Jiri Jonas, Michael Keen, Andrea Lemgruber, Marialuz Moreno-Badia, Andrea Schaechter, Mauricio Soto, Anita Tuladhar, and Mauricio Villafuerte. Matias Antonio, Petra Dacheva, Raquel Gomez Sirera, and Julia Guerreiro provided research assistance. In addition, contributions were provided by Emre Alper, Jochen Andritzky, Emanuele Baldacci, Xavier Debrun, Julio Escolano, Marc Gerard, Bertrand Gruss, Jimmy McHugh, Iva Petrova, Anna Shabunina, and Jaejoon Woo.

    Maria Delariarte and Nadia Malikyar provided excellent administrative and editorial assistance. From the IMF External Relations Department, Nancy Morrison edited the volume, and Sean Culhane and Michael Harrup managed its production.

    The analysis has benefited from comments and suggestions by staff from other IMF departments. Both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.

    This version of the Fiscal Monitor is available in full on the IMF’s website,

    Further inquiries may be sent to the Fiscal Policy and Surveillance Division, Fiscal Affairs Department.

    International Monetary Fund

    700 19th Street, N.W.

    Washington, D.C. 20431, U.S.A.

    Fax: (202) 623-6343

    Main Themes

    Fiscal sustainability risks remain elevated, as progress in some regions has been offset by delays in fiscal consolidation in others. Most advanced economies are reducingfiscal deficits this year, but the United States has put adjustment on hold, and fiscal adjustment had been postponed in Japan relative to the pace envisaged in the November Fiscal Monitor, even before the recent earthquake, which will involve additional fiscal costs. Debt ratios are still rising in most advanced economies, and financing needs are at historical highs. Although market conditions are now favorable for most, markets have in the past reacted late and abruptly to deteriorating fiscal conditions. The fiscal outlook for emerging economies is more favorable, but this reflects in part the tailwinds of high asset and commodity prices, low interest rates, and strong capital inflows; their reversal could leave fiscal positions exposed in many cases. Moreover, some of these economies may be gradually overheating. For advanced economies, steady annual progress, starting now, toward bringing debt ratios to prudent levels in the medium term is essential. Emerging economies should use revenues associated with current favorable conditions to rebuild fiscal space rather than to increase spending in the near term. Both groups should make progress on structural reforms to enhance growth and equity, and strengthen fiscal institutions and transparency.

    Headline deficits in advanced economies fell in 2010, but this reflected the economic recovery and declining needs to support the financial sector rather than tighter policies. By contrast, most advanced economies do plan to tighten fiscal policy this year. Nevertheless, deficits will remain large, the average general government gross debt ratio is projected to breach the 100 percent threshold for the first time since the aftermath of World War II, and gross financing needs will reach record levels. Moreover, the United States has deferred consolidation plans for this year, introducing further stimulus. Prior to the earthquake that struck the country on March 11, Japan’s fiscal stance was broadly neutral, with a postponement of fiscal adjustment relative to the pace envisaged in the November Fiscal Monitor. The earthquake will now inevitably involve significant additional fiscal costs, the magnitude of which cannot be properly estimated at this early stage.

    The United States needs to accelerate the adoption of credible measures to reduce debt ratios. In Japan, when estimates of the overall fiscal cost of disaster relief and reconstruction become available, it will be necessary to incorporate them into plans for steady medium-term fiscal adjustment, backed up by measures more clearly identified than in the past. In the euro area, where fiscal consolidation has largely unfolded according to plans, progress in identifying a comprehensive pan-European approach to crisis management is welcome, but important details remain to be agreed. In all advanced economies, if growth this year proves faster than in the baseline scenario presented in the April 2011 World Economic Outlook (WEO), additional revenues should be saved; in the event of a slowdown, countries with fiscal space should allow the automatic stabilizers to operate. For most advanced economies, medium- and long-term spending pressures for pensions and especially health care remain to be addressed.

    Deficits in emerging economies fell last year and will do so again this year—even after discounting for faster growth. In the face of rising inflationary pressures, some emerging economies are taking appropriate advantage of supportive macroeconomic conditions to achieve significant improvements in their cyclically adjusted primary balances. Others need to do more. Emerging economies need to resist the temptation in the near term to use current favorable tailwinds to boost spending and instead should rebuild fiscal buffers.

    Following a large countercyclical stimulus in 2009, low-income economies tightened fiscal policy significantly last year and will tighten again this year, though more modestly, making good progress in rebuilding buffers drawn on in response to the crisis. Going forward, they need to balance critical spending needs—including those to address the social costs of high commodity prices—with fiscal sustainability concerns.

    Across income levels, fiscal institutions need to be strengthened, including those aimed at improving fiscal transparency, to help ensure that fiscal targets are credibly achieved. There is evidence that faced with increasing fiscal pressures, some countries are resorting to accounting stratagems to meet their fiscal targets.

    In all countries where deficit reduction is required to restore debt ratios to prudent levels, action is needed to ensure that the burdens of adjustment and benefits of economic recovery are distributed equitably. This is a key condition to make the adjustment sustainable.

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