Abstract
2014 Triennial Surveillance Review - Staff Background Studies
II. REVIEW OF FISCAL POLICY ADVICE1
Executive Summary
The global financial and economic crisis sparked a wide-ranging debate about the efficacy of conventional policy approaches. Central to this debate were questions about assessing the appropriate stance of fiscal policy over the business cycle and the design of fiscal adjustment strategies, and how well this was reflected in Fund surveillance.
In this context, this paper has three broad objectives, namely to: (i) review how Fund-wide fiscal policy advice changed with the crisis; (ii) analyze the scope, depth and consistency of the Fund’s fiscal advice to individual countries; and (iii) examine whether the Fund’s fiscal policy analysis and advice was well integrated as part of a comprehensive policy discussion. To this end, staff examined a range of multilateral surveillance products and Article IV consultation staff reports.
Drawing on the early lessons from the crisis, the Fund adopted a more nuanced approach that better balances the short- and medium-term roles of fiscal policy. The Fund’s bilateral fiscal analysis and advice also sought to respond to changing country circumstances, and has been broadly consistent with Fund-wide advice and across countries. While there has been important progress in the depth of analysis, the specificity and comprehensiveness of fiscal advice varies across Article IV reports.
During the crisis, the Fund’s fiscal advice generally had a stronger cyclical element and was correspondingly more focused on the pace of adjustment. The composition of fiscal measures also received greater attention, reflecting the implications for sustainability as well as growth and equity considerations. Article IV reports have a medium-term focus and the coverage of debt sustainability analyses has improved.
However, most reports did not propose a clear medium-term fiscal anchor. Also, the analysis of fiscal risks and intersectoral connections varied across countries. While fiscal institutions (e.g., fiscal rules) have been prominent in Fund advice, there was still insufficient focus on other factors affecting implementation (e.g., capacity and political economy). The role of fiscal policy within the policy mix is often not considered in a sufficiently integrated way.
The following are possible options that could help support the objective of deeper, more cohesive, and consistent advice:
Present fiscal advice in terms of a clear and well justified anchor, specified as appropriate for each country either in terms of levels (e.g., fiscal balance, debt stock) or changes (e.g., a recommended amount of adjustment).
Strengthen the Fund’s analytical basis for using the structural balance to better integrate cyclical considerations into fiscal policy advice.
Deepen Fund-wide analysis and guidance on spending measures to support increased attention to advice on the composition of fiscal measures.
Include more comprehensive analysis of fiscal risks (e.g., contingent liabilities, intersectoral risks) and, over time, develop tools for more comprehensive balance sheet analysis.
Consider the practical and political feasibility of policy advice for policymakers, including in the context of follow-up on past policy advice.
Give more attention to intersectoral connections and the interaction of policies, with a view to providing advice on a well-integrated and comprehensive policy mix.
A. Introduction
1. Overview. The recent global financial and economic crisis sparked a wide-ranging debate about the efficacy of conventional policy approaches. Central to this debate were questions about choosing the appropriate stance of fiscal policy through the different phases of the crisis and the design of fiscal adjustment strategies, including the implications for both economic growth and fiscal sustainability. In response, the Fund’s fiscal advice through its multilateral and bilateral surveillance has evolved throughout the crisis and with changing economic circumstances, signaling a more discerning approach to fiscal policymaking.
2. Scope and methodology. This paper has three broad objectives, namely to: (i) review the impact of the crisis on the Fund’s fiscal policy advice; (ii) analyze the scope, depth and consistency of the Fund’s fiscal policy advice across countries and over time; and (iii) examine the links between the Fund’s fiscal policy analysis and advice and developments and policies in other sectors. To this end, staff examined a range of multilateral surveillance products and staff reports for Article IV consultations (hereafter, Article IV reports) for 24 countries over the period 2008–13.2
3. Structure. This paper is organized as follows. Section B discusses the wider analytical debate and traces the evolution of Fund-wide fiscal policy recommendations. Section C analyzes the scope, depth and consistency of the Fund’s policy advice to individual countries. Section D examines the overall cohesiveness of fiscal policy advice. Finally, Section E concludes and offers possible options to strengthen the Fund’s fiscal policy analysis and advice, with emphasis on better integrating multilateral and bilateral surveillance.
B. The Wider Analytical Debate and Evolution of the Fund’s Policy Advice
Analytical Debate on the Role of Fiscal Policy
4. The consensus view prior to the global crisis was that fiscal policy should play a limited role as a short-term stabilization tool.3 The reluctance to use fiscal policy actively for stabilization reflected three broad considerations: (i) the time it takes for fiscal measures to be felt in the economy (monetary policy was seen as more agile and thus a preferred countercyclical policy tool); (ii) fiscal policy responses had often been asymmetric in previous decades (procyclical in good times, leaving little room for countercyclical policy in bad times); and (iii) the notion that markets reward fiscal discipline (and that, at the extreme, fiscal consolidation could be expansionary). In part, skepticism about the effectiveness of fiscal stimulus also reflected a lack of conclusive evidence regarding the sign and magnitude of fiscal multipliers—the change in output resulting from an exogenous change in government spending or taxes.4
5. Early in the crisis, there was a wide spectrum of views regarding fiscal policy effects. At one end of the debate, some academics and policymakers continued to doubt the ability of fiscal policy to effectively support demand. They also argued that positive confidence effects could lead to “expansionary fiscal consolidations.” At the other end of the debate, some academics found evidence of larger multipliers.5 They also suggested that adverse market reactions to declining economic activity and rising debt ratios could undermine the scope for confidence effects to offset the direct Keynesian effects of fiscal policy. As the legacies of the crisis—high sovereign debt and protracted low growth—became more evident, the positions within the debate became more entrenched, as illustrated by the debate over the debt overhang.6 The Fund, through its analytical work and real-time policy advice, contributed prominently to this intense and ongoing debate.7
6. Although the verdict is still open, the case for counter-cyclical fiscal policy now seems stronger than before the crisis, especially in severe and protracted recessions. In particular, a sizable body of literature—including studies at the Fund—concludes that fiscal multipliers are larger when monetary policy is constrained by the zero lower bound (ZLB), the financial sector is weak, or the output gap is particularly large. A number of studies also questioned the earlier evidence of negative fiscal multipliers associated with expansionary fiscal contractions. Nonetheless, a number of questions remain open, including identifying factors that could mitigate the effectiveness of fiscal stimulus (such as low confidence in government actions or highly rigid labor markets), and the dependence of the multiplier effect on the initial state of the fiscal accounts or type of fiscal instruments (i.e., expenditures and taxes).
7. The evidence for using discretionary fiscal policy to counter more “normal” cyclical fluctuations is less well established. Lags in the design and implementation of discretionary fiscal policy—i.e., a change in the structural fiscal balance—are still an important consideration in short recessions.8 In any event, the very high level of public debt in many countries now also limits the room for future fiscal expansion in downturns.9 There may also be political constraints on reversing discretionary fiscal stimulus when economic conditions improve (creating questions about sustainability and potentially leading to market reactions that could reduce the value of stimulus). These factors tend to suggest that, in response to “normal” cyclical fluctuations, the preferred approach may be to combine the free play of automatic fiscal stabilizers with more active monetary policy (provided it is not constrained).
The Fund’s Multilateral and High-Level Fiscal Advice10
8. Fund-wide analysis and advice on fiscal policy has evolved in step with the changing economic environment (Figure 1—timeline of Fund’s fiscal policy advice). As the economic downturn deepened in 2009, the Fund called for a coordinated and front-loaded fiscal stimulus in the short run, as well as for a credible path towards fiscal normalization over the medium term. This shift in advice both contributed to, and reflected, the wider debate on the effectiveness of fiscal policy when an economy faces the ZLB constraint.11 As the global economy showed signs of turning around in 2010, the Fund turned its focus to the need for clear medium-term exit strategies, while warning against an abrupt, front-loaded tightening and advocating adequate cross-country coordination to mitigate risks to the global recovery.12 As the strength of the recovery waned (2011–13), the Fund continued to caution against overdoing adjustment in the short term, while still calling for credible medium-term adjustment. Although the Fund did not go as far as some in the debate, this body of advice marked an institutional shift toward a more state-contingent view of the effectiveness of fiscal policy as a stabilization tool than had been the case prior to the crisis.
Timeline of IMF Fiscal Policy Pronouncements Mapped Against Global GDP Growth by Income Group
(Year-on-year percentage change)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Timeline of IMF Fiscal Policy Pronouncements Mapped Against Global GDP Growth by Income Group
(Year-on-year percentage change)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Timeline of IMF Fiscal Policy Pronouncements Mapped Against Global GDP Growth by Income Group
(Year-on-year percentage change)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
9. Fiscal policy advice was calibrated and tailored for advanced, emerging market, and low-income countries, taking into account their own dynamics and financing constraints (Box 1). The Fund’s institutional advice, particularly as delivered in flagship publications and policy papers, has focused mostly on developments in advanced economies (AEs)—in particular the euro area sovereign debt crisis and risks of euro breakup—and large emerging market economies (EMs). Although since 2012, the Fiscal Monitor has provided more analysis and policy advice specific to low-income countries (LICs). Fund-wide advice to EMs and LICs has mostly been shaped by analytical work outside the flagship publications and articulated in regional products, such as Regional Economic Outlooks, that provide a ‘bridge’ between multilateral and bilateral surveillance. A number of policy papers focused on EM- or LIC-specific challenges, including food and fuel subsidy reform, revenue mobilization, fiscal management of external shocks, and fiscal frameworks for resource-rich countries.13
10. Drawing on the early lessons from the crisis, the Fund’s fiscal advice has become more pragmatic and flexible, balancing a wider range of macroeconomic considerations. Sound government finances remain the central objective as a basis for macroeconomic stability and sustainability. However, Fund advice now also gives greater attention to a range of short- to long-term considerations. These include:
the pace and phasing of fiscal measures, which weighs the costs (i.e., adverse short-run effects on growth) and benefits (i.e., reduction in sovereign risk) of a faster adjustment;
the composition of fiscal packages, taking into account not only the aggregate expenditure-revenue mix, but also the efficiency, growth, and equity implications of individual measures;
a more risk-based approach than in the past, with more in-depth analysis of debt sustainability and more comprehensive assessment of fiscal risks;
the design of institutional frameworks, which have gained prominence as tools to underpin effective fiscal policy; and
a well integrated policy mix, accounting more fully for intersectoral connections and policy spillovers.
11. Weaving together this wider range of considerations has, at times, posed a challenge for conveying the Fund’s evolving approach to fiscal policy. However, the collective lessons from the past five years point toward a set of principles for sound fiscal policy design, particularly during crises, although many of them remain relevant beyond the crisis (Box 2). While these principles do not apply equally to all countries or all circumstances, they provide an analytical framework and a menu of options to formulate relevant and more analytically-grounded bilateral fiscal policy advice.
Multilateral Fiscal Policy Advice by Income Group
Advanced economies: The Fund recommended a discretionary fiscal stimulus of 2 percent of GDP in 2009– 10 for AEs that had fiscal space without financing constraints. It cautioned against an early withdrawal of stimulus that could jeopardize economic recovery, recommending that fiscal consolidation start only after clear evidence of self-sustaining recovery. As economic conditions began to stabilize during 2010, the focus turned to preparations for an “exit strategy.” The Fund called for a shift to consolidation paired with “growth-friendly” structural reforms that would also support domestic demand in the short run.1/However, as growth faltered in 2012, the Fund emphasized the need for more gradual adjustment (1 percent of GDP a year on a structural basis) supported by a credible medium-term plan, instead of heavy front-loading, and provided that financing allowed.2/
Emerging market economies: The Fund supported early stimulus efforts for EMs, albeit more cautiously than in AEs given the potential for less well developed institutions and less secure financing to limit fiscal space. The Fund’s advice to EMs was calibrated to their different circumstances, calling for expansionary fiscal policy in EMs with low public debt, while warning of large public sectors and debt constraints in Brazil, India, and the Middle East. As EM economies recovered more rapidly from 2009, the Fund’s fiscal advice in EMs shifted to taking advantage of favorable cyclical conditions to rebuild fiscal buffers, with an explicit link to cyclical and financing conditions.
Low-income economies: The Fund encouraged LICs to use available fiscal space to defend against the dampening affects of the crisis.3/ This advice generally focused on structural reforms (e.g., to encourage private investment) and, to a lesser extent, keeping spending plans unchanged, given that many LICs were subject to significant financing constraints. IMF financial support to LICs was also redesigned and expanded specifically to address crisis constraints. As economic conditions in LICs improved, and against the backdrop of countries’ own effort to protect social expenditure, the Fund’s fiscal policy advice to LICs increasingly highlighted the need to make growth more inclusive while preserving debt sustainability.4/ With the recovery gaining momentum, the Fund recommended rebuilding fiscal buffers, and addressing gaps in infrastructure and social safety nets.
1/ These include healthcare and pension reform, and improvements in fiscal institutions, which could help bring debt ratios back towards prudent levels over the medium term.2/ This recommended adjustment was discussed in several multilateral products and was prominent in the November 2010 Fiscal Monitor, Fiscal Exit: From Strategy to Implementation. The post-crisis fiscal consolidation strategy for AEs also included: (i) non-renewal of stimulus packages; (ii) freezing real per capita spending, excluding pension and health; (iii) stabilizing entitlement spending-to-GDP; and (iv) measures to widen the tax base and reduce evasion.3/ While the World Economic Outlook tends to group LICs together with EMs, the Fiscal Monitor and various Regional Economic Outlooks have analyzed LICs as a separate group and provided more LIC-specific advice.4/ The April 2010 Regional Outlook Sub-Saharan Africa. Back to High Growth? shows that most countries in Sub-Saharan Africa were able to shield pro-poor and pro-growth public spending during the crisis.Principles for Sound Fiscal Policy
The crisis profoundly altered the Fund’s advice on the role of fiscal policy as a macroeconomic policy tool. The combination of impaired monetary policy, severely damaged (if not failing) financial sectors, the associated debt overhang and faltering growth brought into sharper focus the need to design fiscal strategies that balance short-term and medium- to longer-term considerations. Drawing on the lessons from the crisis, analytical work by the Fund1/ articulates the core principles for designing and implementing effective fiscal policy.
To be an effective countercyclical tool,2/ discretionary fiscal policy should be timely, targeted and temporary. It should also depend on there being sufficient fiscal space so that the resulting debt increase does not undermine sustainability (accounting for contingent liabilities).
To support confidence and maintain market access, a fiscal strategy should be based on a credible and concrete medium-term fiscal plan with a clear anchor. A medium term anchor helps balance cyclical and debt sustainability considerations in the formulation of policy. The anchor could be specified in terms of either a fiscal (level) or adjustment (change) target to be achieved in 4–5 years.
The pace and phasing of fiscal measures should be clearly anchored and calibrated depending on the state of the economy and taking account of the need for: (i) timely withdrawal of stimulus (but not too early); (ii) more gradual consolidation to avoid undue damage to growth; and (iii) the importance of market pressures and financing constraints in determining fiscal space.
The composition of a fiscal package is important, reflecting in large part that different revenue and expenditure measures have different impacts on growth and sustainability (for instance, raising the efficiency of health care spending helps fiscal sustainability without having large short-term output costs; and well-designed infrastructure spending can have positive growth effects and thus different effects on fiscal dynamics than an increase in current spending). Equity and efficiency considerations are also important.
In light of the macro-fiscal vulnerabilities that were not fully recognized before the crisis, fiscal policy analysis should reflect a more in-depth approach to debt sustainability and a more comprehensive coverage of fiscal risks (e.g., macroeconomic uncertainty, contingent liabilities including intersectoral or intergovernmental exposures, or implementation risks).
The design of institutional frameworks is crucial for policy credibility and effective implementation. This entails: (i) more policy flexibility within binding commitments, such as fiscal rules based on structural rather than nominal fiscal balances (recognizing that the former may be more complicated, requiring special attention to enforcement and monitoring); (ii) more transparency, including efforts to improve disclosure of contingent liabilities; and (iii) being more forward-looking, including through developing medium-term budget frameworks.
For fiscal policy to be fully effective, coordination and cooperation with other policies, levels of government, and across countries is crucial. In this regard, examining intersectoral connections and policy spillovers is an important diagnostic step to embed fiscal policy in a well-integrated policy mix. For instance, beyond automatic stabilizers, the size of discretionary fiscal action should depend on other countercyclical measures (particularly on the monetary side).
C. Fiscal Advice to Individual Countries
12. As the Fund’s fiscal policy advice has evolved at an institutional level, so too has the Fund’s bilateral surveillance sought to respond to the changing circumstances in countries. This has prompted questions—and, at times, criticisms—about the consistency of fiscal advice across countries. Accordingly, this section analyzes the coverage, depth and consistency of the Fund’s fiscal advice to member countries in the context of bilateral surveillance. For a majority of the 24 countries in the sample (see Annex I), fiscal issues or vulnerabilities were a central policy issue from early in the crisis.14 The analysis involved assessing Article IV reports for these countries during 2009–1315 against a structured set of questions (see Annex II). On that basis, this section examines the following aspects of the Fund’s fiscal advice and how they changed over the period: the design of fiscal policy as a demand management tool; the medium-term fiscal path; the composition of fiscal measures; fiscal sustainability and risks; and fiscal institutions and policy implementation.
Fiscal Policy and Demand Management
13. Fiscal advice has generally been sensitive to cyclical developments.
Over 70 percent of reports advised stimulus in 2009, consistent with high-level multilateral advice at the time.
Advice focused on discretionary fiscal policy—i.e., a change in the structural balance—in about three quarters of the sample, reflecting the desire to better calibrate fiscal policy to cyclical conditions (particularly given the emphasis on countercyclical advice early in the crisis). Advice covered both discretionary policy and automatic stabilizers in about a quarter of Article IV reports, but rarely focused solely on automatic stabilizers. The vast majority of reports did not explicitly discuss the effectiveness of automatic stabilizers in considering the size of discretionary action.16
Short-term advice varied over time and across countries, in keeping with changing economic circumstances as reflected in Figure 1. As the crisis progressed and the path to recovery was more varied across countries, so too was the Fund’s fiscal advice. In 2010, stimulus was recommended for one third of the sample and consolidation for the other two thirds (with a similar split for both AEs and EMs). By 2011, most countries in the sample were advised to withdraw fiscal stimulus, entailing short-term consolidation in most cases. While increasing attention was paid to the pace of fiscal adjustment during this period, in retrospect the distinct shift back to short-term consolidation may, in some cases, have come too soon.17
Cyclical considerations were balanced against other considerations over time, such as sustainability, financing constraints or fears of contagion. Throughout the period, initial cyclical conditions were used to determine the recommended size of fiscal actions in around 60 percent of reports. A larger share (90 percent) also considered sustainability.
Types of Advice on Discretionary Policy
(Percent of reports with advice on discretionary policy)
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Types of Advice on Discretionary Policy
(Percent of reports with advice on discretionary policy)
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Types of Advice on Discretionary Policy
(Percent of reports with advice on discretionary policy)
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Short-Term Discretionary Policy: Cyclicality of Advice
(Percent of reports with advice on discretionary policy)
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Short-Term Discretionary Policy: Cyclicality of Advice
(Percent of reports with advice on discretionary policy)
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Short-Term Discretionary Policy: Cyclicality of Advice
(Percent of reports with advice on discretionary policy)
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Criteria Taken into Account in Advice
(Percent of reports)
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Criteria Taken into Account in Advice
(Percent of reports)
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Criteria Taken into Account in Advice
(Percent of reports)
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14. However, there appear to be some important caveats in how consistently cyclical factors have been reflected across countries and over time.
There were differences between AEs and EMs in how closely the fiscal advice reflected cyclical considerations.18 In most AEs, the focus on counter-cyclical policies became less pronounced as economic conditions improved. From 2011 onwards, the focus shifted from crisis response to restoring sustainability (for instance, following Japan’s shift to fiscal expansion in early 2013 as part of the broader three “arrows” reform strategy, the 2013 Article IV report noted the need to complement short-term stimulus with an “ambitious and concrete consolidation plan beyond 2015”). In contrast, fiscal advice remained clearly countercyclical in more than half the EMs in the sample throughout the entire period, partly reflecting the larger available fiscal space—in some cases due to a lower debt level (Figure 1).
The difficulty of pinpointing turning points in cycles and/or accurately estimating the output gap has sometimes led to differences of views between staff and the authorities. Particularly in some AEs where recoveries remained weak and uncertain, staff and the authorities did not always have a common view on the underlying macroeconomic assumptions or the appropriate stance of fiscal policy. In the 2013 Article IV consultation for the United Kingdom, for example, much of the discussion focused on market risk and the pace of consolidation, with different views about the growth upside from slower consolidation and the downside from loss of confidence, and also reflecting underlying assumptions about the output gap and the extent to which growth momentum was building.19
15. The analytical foundations for the Fund’s cyclical advice were generally placed on a firmer footing. Often advice at the country level benefited from Fund-wide analytical work with a clear operational orientation.
The share of reports that explicitly took into account the macroeconomic impact of fiscal policy, including fiscal multipliers, rose from less than half in 2009 to three quarters in 2013. Much of this advice is directly informed by research and staff guidance20 on the use of multipliers and, where possible, presented in structural balance terms.
Structural fiscal balances have increasingly provided the basis for fiscal advice. Around half of the sample AEs during 2009–11, and the majority in 2012–13, used structural balances for policy analysis and advice. The shift was also evident in EMs, where advice using structural balances increased from one third of EMs in 2009 to two thirds in 2013. However, structural balances were not used for advice to the LICs in the sample. This is not surprising given the technical and operational difficulties even among AEs and EMs, including in calculating structural balances and the underlying output gaps, as well as the associated communication difficulties (Box 3).
Use of Cyclically-Adjusted (or Structural) Balance by Income Group
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Use of Cyclically-Adjusted (or Structural) Balance by Income Group
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Use of Cyclically-Adjusted (or Structural) Balance by Income Group
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
16. As advice became more sensitive to the cycle, this led to greater focus on the pace of adjustment. From 2009 onwards, fiscal advice in most sample countries considered explicitly the pace or phasing of fiscal actions (Figure 2). Against a backdrop of the shift towards recommending fiscal consolidation in 2010–11, the majority of AE and EM reports were broadly in line with the recommended 1 percent of GDP annual adjustment in the structural balance.21 However, for another quarter of sample AEs and EMs, the advice was not sufficiently quantified to assess against this benchmark (reflecting the insufficient attention given to defining a country-specific anchor, discussed further below). Frontloading or back-loading fiscal adjustment had potential implications for growth—roughly a quarter of reports discussed these issues (Figure 2).
Considerations Related to the Pace or Phasing of Fiscal Actions
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Considerations Related to the Pace or Phasing of Fiscal Actions
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Considerations Related to the Pace or Phasing of Fiscal Actions
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
Structural Fiscal Indicators
The main purpose of the structural balance is to show the fiscal position net of cyclical and other temporary effects. The IMF has long used structural balances in AEs and some EMs to evaluate the extent to which a deterioration in the fiscal balance reflects adverse macroeconomic conditions, and to calibrate the amount of adjustment needed to reduce public debt ratios to more sustainable levels. Recently, the structural balance has increasingly been used as a policy target—sometimes as part of a fiscal rule. The main advantage is that it is more directly under the control of governments than the “headline” or nominal balance. The structural balance can help policymakers take a medium-term perspective rather than attempting to fine-tune a nominal balance. If a country is able to pursue a predetermined structural stance, it would not offset cyclical factors but instead let automatic stabilizers operate. Structural balance targets entail a more binding fiscal stance in good economic times (relative to the nominal balance), while allowing room for maneuver via automatic stabilizers in downturns.
However, estimating structural budget balances is not straightforward and subject to significant measurement errors. Extracting the non-discretionary component of revenue is a particularly difficult step. The standard methodology filters out cyclical movements by using constant elasticities of revenue to the output gap. However, this is not always sufficient to remove all cyclical factors. While the business cycle is the most prominent source of macroeconomic fluctuations, others include boom-and-bust cycles of asset or commodity prices, and compositional changes in output. To address this issue, the calculation of structural balance has evolved in two distinct directions. The first approach adjusts the structural balance formula beyond the output gap. New structural balance indicators have been developed to correct for a broader range of macroeconomic fluctuations; but these add further complexity to the concept (Bornhorst and others, 2011). The second approach measures discretionary revenues through a bottom-up approach by using budget estimates of tax measures mandated by law. The second approach is conceptually more appealing but faces practical difficulties, in particular regarding the characterization of the “unchanged policy” benchmark.
Another issue pertains to measurement bias of the output gap, which is a central component of the structural balance formula. Even when it is measured on the production side, potential output calculations typically involve the use of statistical filters that give excessive weight to the most recent observations and result in frequent revisions—an issue described as the “end-point bias.” In the country sample for this study, the World Economic Outlook real-time output gaps are found to be underestimated, on average, by about 0.5–1 percent—a similar order of magnitude to that reported by Kempkes (2012). This makes the structural budget balance prone to ex post downward revisions, thus potentially changing the assessment of the fiscal stance.
These issues do not fundamentally undermine the relevance of the structural balance, but do complicate its implementation in practice. While this indicator imperfectly filters out asset and commodity price cycles, it is still more “accurate” than the nominal balance, which does not extract these factors at all. In addition, the potential output measurement error is generally significantly lower than the “noise” created by the cyclical component of the nominal balance. Even so, the measurement difficulties can make the concept difficult to communicate to non-specialist policymakers and the wider public, who tend to focus on nominal balances.
Medium-Term Path
17. Virtually all Article IV reports discuss the medium-term fiscal path. Despite the greater emphasis on responding to cyclical conditions, in most cases the Fund’s fiscal advice continued to aim at medium-term consolidation, consistent with the multilateral call for a credible path for fiscal normalization (¶8). Most reports discuss explicitly fiscal and debt sustainability and a medium-term fiscal adjustment plan. Even in 2009, when the Fund’s call for short-term stimulus was strongest, more than half of reports discussed the tradeoffs between sustainability and growth. The share has since risen.
Discussion of Sustainability and Growth Tradeoffs
(Percent of reports)
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Discussion of Sustainability and Growth Tradeoffs
(Percent of reports)
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Discussion of Sustainability and Growth Tradeoffs
(Percent of reports)
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18. At the same time, a surprising number of reports do not clearly identify or quantify a country-specific medium-term anchor for fiscal policy. The Fund’s multilateral advice has advocated specifying medium-term plans consistent with fiscal sustainability, in terms of either an average pace of adjustment (typically in the structural balance) or a fiscal balance or debt target to be achieved within 4–5 years.22 However, Article IV reports tend to present a baseline projection that reflects the authorities’ fiscal plans, and then provide advice that would result in a different path— but are not always clear on the alternative path or the target. Lack of clarity on the target or anchor adds to the difficulty in pinning down the extent to which the Fund’s policy advice is pro- or countercyclical.
Composition of Fiscal Measures
19. The Fund’s fiscal advice has given progressively more attention to the composition of fiscal measures to achieve sustainability.
This advice has tended to focus more on permanent fiscal measures, or a mix of permanent and temporary measures, rather than temporary measures alone.
The Fund’s recent advice has moved towards a balanced mix of revenue and expenditure measures. In 2010–11, nearly two thirds of reports in the sample gave more emphasis to expenditure than revenue measures. The emphasis on expenditure measures diminished in 2012–13, suggesting a broader balance of revenue and expenditure advice.
This pattern was more evident among AEs and LICs in the sample than for EMs, where the focus remained on expenditure measures throughout the period. This could well reflect the generally faster recoveries in EMs. In contrast, a durable solution to the larger and more protracted fiscal adjustment needs in AEs post-crisis would more likely require both revenue and expenditure measures. In this regard, the “size of the adjustment” was the most frequent criterion in determining the recommended composition in AEs (Figure 3). For LICs, initial conditions and efficiency considerations (e.g., fuel subsidies) were cited most frequently.
Criteria Taken Into Account in Advice on Composition of Measures
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
1/ For example, high level of expenditure or taxation relative to GDP.2/ For example, large adjustment needs may require to rely on both revenue and spending measures.3/ For example, subsidy reform.4/ For example, wealth tax.5/ For example, multipliers.Criteria Taken Into Account in Advice on Composition of Measures
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
1/ For example, high level of expenditure or taxation relative to GDP.2/ For example, large adjustment needs may require to rely on both revenue and spending measures.3/ For example, subsidy reform.4/ For example, wealth tax.5/ For example, multipliers.Criteria Taken Into Account in Advice on Composition of Measures
(Percent of reports)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
1/ For example, high level of expenditure or taxation relative to GDP.2/ For example, large adjustment needs may require to rely on both revenue and spending measures.3/ For example, subsidy reform.4/ For example, wealth tax.5/ For example, multipliers.
Provision of Advice on the Composition of Fiscal Packages (spending vs. revenue)
(Percent of reports)
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Provision of Advice on the Composition of Fiscal Packages (spending vs. revenue)
(Percent of reports)
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Provision of Advice on the Composition of Fiscal Packages (spending vs. revenue)
(Percent of reports)
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Type of Measures: Temporary vs. Permanent
(Percent of reports)
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Type of Measures: Temporary vs. Permanent
(Percent of reports)
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Type of Measures: Temporary vs. Permanent
(Percent of reports)
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More Emphasis on Expenditure Measures than Revenue Measures
(Percent of reports)
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More Emphasis on Expenditure Measures than Revenue Measures
(Percent of reports)
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More Emphasis on Expenditure Measures than Revenue Measures
(Percent of reports)
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20. Recommendations related to composition have become better justified, taking into account a wider range of considerations.
Most reports took account of the impact on growth in advising on the composition of fiscal packages (Figure 3). Staff typically recommended that fiscal adjustment focus on measures having the smallest negative impact on short-term growth (low fiscal multipliers), such as entitlement reforms and increases in less distortionary taxes. To the extent that fiscal measures also promote higher potential growth (through explicit efficiency considerations—for instance, a shift away from payroll taxes) or help avoid the problem of hysteresis in growth,23 they can also improve longer-term fiscal sustainability.
Coverage of efficiency considerations in fiscal analysis—such as subsidy reform, which the Fund has sought to promote both analytically (papers and conferences) and operationally (technical assistance (TA))—increased to around two-thirds of the sample in 2011 before falling back somewhat in subsequent years.
Equity considerations—while not a new paradigm—have also become increasingly important for advice on composition. In 2010, fewer than 15 percent of reports explicitly considered equity issues as part of fiscal advice, compared with around 40 percent of reports in the subsequent three years (Figure 3). As with potential efficiency gains, the peak in coverage of equity issues (2011) coincided with the shift in advice towards consolidation. This was most important in the initial design of fiscal packages, with a view to sharing the burden of adjustment fairly.
21. Although the Fund has paid more attention to the composition of adjustment, the depth of analysis has been uneven. While fiscal advice has been pragmatic, tackling both revenue and expenditure measures, the Fund’s recommendations on the revenue side have tended to be more concrete, drawing from the institution’s considerable expertise in the design, effectiveness and impact of revenue measures. More in-depth analysis of expenditure policies, in particular beyond health and pension reforms, would make the Fund’s fiscal policy advice more effective. One exception tends to be for resource-dependent economies, particularly LICs and in the Middle East and North Africa, where advice to scale back fuel subsidies or cut other non-pro-poor spending has been more concrete and where the Fund has recently invested in more analytical work.
Fiscal Sustainability and Risks
22. The crisis has spurred efforts to improve the coverage and depth of debt sustainability analyses (DSAs), especially for market access countries. DSAs have long been standard for LICs, but before the crisis they were not systematically part of fiscal analysis in AEs and EMs. In an effort to address these gaps, the Fund reviewed the DSA framework for market access countries (MAC DSA) in 2011. Nonetheless, as recently as 2013, two reports in the sample still did not include a public DSA at all, and three reports (down from six in 2012) included only basic DSA charts and tables without the analysis being more integrated into the policy discussion. Following new guidance on the MAC DSA in 2013, early evidence points to more in-depth and better integrated assessments of risks to fiscal sustainability in countries that have applied the MAC DSA (Box 4). However, attaching relative significance to the various dimensions of risk now being captured in the new framework (i.e., debt stock, financing requirements, etc) remains a challenge and will benefit from further experience with implementing the new framework. Moreover, some risks in the MAC DSA are not standard in the LIC DSA framework (i.e., gross financing needs and debt portfolio composition). These risk metrics could be added where relevant for “frontier” LICs that have market access (e.g., drawing on the joint IMF/World Bank medium—term debt management strategy analytical tool).
23. Progress toward more comprehensive assessments of fiscal risks is less well advanced. For individual countries, Article IV reports most often examine risks arising from macroeconomic uncertainty. The analysis of fiscal risks related to policy implementation, credibility and, to a lesser extent, contingent liabilities (such as those reflecting sovereign-bank linkages) gained ground during the crisis, although attention to these issues dropped off in 2013. At this stage, it is difficult to ascertain whether this reflects a continuing gap in the coverage of risks or an appropriate decline from crisis-related peaks (i.e., as banking sectors stabilize). More surprisingly, only a few reports scrutinized risks associated with the structure of public debt, suggesting that liquidity and composition risks have been covered less well than solvency risks. However, staff reports that incorporate analysis from the new MAC DSA framework appear to address this by examining both gross financing need and debt portfolio characteristics.
Assessment of Fiscal Risks
(Percent of reports that discuss fiscal risks)
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Assessment of Fiscal Risks
(Percent of reports that discuss fiscal risks)
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Assessment of Fiscal Risks
(Percent of reports that discuss fiscal risks)
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24. The coverage and depth of analysis of specific long-term fiscal challenges—such as pension reforms, social security, health care, and aging—varies across countries. Staff reports for AEs cover these issues more than reports for EMs and especially LICs, where coverage is minimal (Figure 3). However, this may reflect tailoring to countries’ needs rather than gaps in coverage, given the looming demographic challenges facing AEs and some EMs. Yet, even among AEs, the emphasis on long-term challenges has waned since the height of the crisis.
25. Very few reports present a systematic assessment of the overall public sector balance sheet. There are, of course, data limitations; the vast majority of countries do not report comprehensive data on financial assets and liabilities, and there has been even less progress on the disclosure and valuation of nonfinancial assets.24 Nevertheless, information is available—and tools exist to assess—some financial assets and liabilities of a government (e.g., public debt stock, contingent liabilities, and pension liabilities). Moreover, a framework for compiling these data exists in the IMF’s Government Finance Statistics Manual. This suggests that there is scope, which is rarely exploited, to more systematically cover stocks and examine liquidity and solvency risks through this lens. More broadly, the relevant standards and codes provide the basis for strengthening the foundations for public sector balance sheet analysis over the medium- to longer-term.25
Debt Sustainability Analysis in Market-Access Countries: Early Lessons
This study assessed how the new MAC DSA has informed the Fund’s fiscal policy advice based on staff reports for 14 higher scrutiny countries—Bahamas, Belarus, Canada, India, Italy, Namibia, Macedonia, Mexico, Morocco, Slovenia, South Africa, Turkey, Ukraine and Uruguay.1/ 2/
The new MAC DSA has resulted in a richer and more detailed assessment of the risks to public debt sustainability for higher scrutiny countries. Following the new guidelines, staff put more emphasis on the risks to public debt sustainability in 2013 staff reports compared to the previous 2012 staff reports. Less than one-third (29 percent) of the 2012 staff reports in our sample contained a write-up on public debt sustainability.
New MAC DSA write-ups now cover both the gross financing and the debt profile. In contrast to the “old” MAC DSA, the new template allows for the discussion of risks to public debt that stem from large gross financing needs and the characteristics of the public debt, including banking sector shocks, the currency composition of the debt, and the profile of the investor base.
In our sample, public debt vulnerabilities related to the gross financing need and debt profile are much more prominent than those related to the level of the debt. All of the reports document public debt vulnerabilities that arise from either large gross financing needs or risky debt profiles or both. In contrast, almost two-thirds (64 percent) of reports reviewed do not identify any public debt sustainability risk arising from the level of public debt. Moreover, only one country in our sample has been classified as high scrutiny on the basis of the level of its debt alone.
There is some evidence that staff’s analysis and advice incorporates a more detailed discussion of public debt vulnerability. This is most notable for countries (e.g., South Africa and Turkey) where the public debt level is not as high as in some AEs, as the analysis in Article IV reports now reflects other public debt vulnerabilities (e.g., the debt portfolio structure or high gross financing needs). Countries with a high level of public debt (e.g., Italy) or where debt is projected to rise beyond benchmarks in adverse scenarios (e.g., Slovenia) also have their public debt analysis integrated into the fiscal advice. For the other countries in the sample (9 out of 14 countries reviewed), the public debt sustainability analysis is not as well integrated into fiscal advice.
From Recommendation to Action: Supporting Implementation
26. Advice on fiscal institutions has been an important element of Fund surveillance on fiscal issues. Advice in most Article IV reports took detailed, or at least partial, account of fiscal institutions. In EMs and LICs, for example, advice has focused on medium-term budget frameworks, including for resource-rich countries (less so in AEs where medium-term frameworks are more firmly established). In AEs and also EMs, advice has also focused on (independent) fiscal councils and fiscal rules (Figure 4).26
Institutions Covered by Fiscal Advice
(Percent of reports reviewed for which policy advice takes account of institutions)
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1/ For example, structural, escape clauses, automatic correction mechanisms, or national legislation.2/ For example, better fiscal reporting or communication strategy.3/ For example, debt target, expenditure growth rule, or legal framework for public-private partnerships.Institutions Covered by Fiscal Advice
(Percent of reports reviewed for which policy advice takes account of institutions)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
1/ For example, structural, escape clauses, automatic correction mechanisms, or national legislation.2/ For example, better fiscal reporting or communication strategy.3/ For example, debt target, expenditure growth rule, or legal framework for public-private partnerships.Institutions Covered by Fiscal Advice
(Percent of reports reviewed for which policy advice takes account of institutions)
Citation: Policy Papers 2014, 059; 10.5089/9781498343077.007.A002
1/ For example, structural, escape clauses, automatic correction mechanisms, or national legislation.2/ For example, better fiscal reporting or communication strategy.3/ For example, debt target, expenditure growth rule, or legal framework for public-private partnerships.
Policy Advice Takes Account of Fiscal Institutions
(Percent)
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Policy Advice Takes Account of Fiscal Institutions
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Policy Advice Takes Account of Fiscal Institutions
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27. However, Article IV reports do not consistently discuss other key factors affecting policy implementation.
Fiscal advice does not always take full account of administrative capacity constraints. Also, most reports do not explicitly refer to recommendations from TA.27 There is scope to better integrate TA and judgments about implementation capacity into fiscal policy advice provided in bilateral surveillance.
About 70–80 percent of reports do not explicitly account for political economy factors in forming their fiscal advice.28 In this regard, Article IV reports focus almost exclusively on recommending “first best” economic policy measures.
Very few reports supplement their policy advice with practical examples of successful implementation (e.g., through cross—country experiences) or complementary policies that might facilitate implementation. Advice on the removal of fuel subsidies has been a notable exception, as it has often been packaged (particularly since 2012) with advice on measures to mitigate the impact on the most vulnerable, communication strategies to build public support, and steps to increase transparency on the use of savings.
Advice on Pace Takes Account of Political Economy Factors
(Percent of reports)
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Advice on Pace Takes Account of Political Economy Factors
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Advice on Pace Takes Account of Political Economy Factors
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28. When the Fund’s fiscal advice has limited traction, staff reports do not often explicitly factor this into future advice. In cases where country authorities indicate that a policy recommendation cannot be implemented (due to political, social, capacity or other constraints), Article IV reports typically do not discuss how the Fund’s advice has been adapted either to offer policy alternatives or new arguments and evidence. While offering “first best” advice, even where not politically or technically viable, may help anchor practical policy discussions, complementing “first best” with policy alternatives may help build traction and provide an even deeper basis for policy discussions. For example, Article IV reports for the United States have consistently recommended introducing a VAT and a carbon tax; the authorities each time countered that the proposals were not politically feasible. While it did not provide an explicit alternative option, the 2013 Article IV report opened the door to a discussion of alternatives, recognizing that “policymakers can choose from this menu of options to achieve a particular level of adjustment.”
D. How Integrated is Fiscal Policy Advice within the Overall Policy Advice?
29. The coverage of intersectoral connections has been incomplete:
Most reports covered fiscal-real linkages—such as the multiplier effects of fiscal policy on growth or the fiscal risks related to growth prospects—which is unsurprising given the extent of recent analytical work in this area. However, sufficient attention was not paid to the sovereign-bank, fiscal-monetary and fiscal-BOP linkages.
Less than half of the sample reports covered fiscal-financial linkages, which is less than might be expected given the nature of the crisis. Article IV reports for AEs paid somewhat more attention to this issue, reflecting the evident risks stemming from potential contingent liabilities in the banking system, and the consequent need for fiscal backstops. Some reports made below-the-line recommendations while others discussed the financial sector’s impact on public debt and the associated increased fiscal adjustment needs. The coverage was surprisingly high among LICs (around a third) and least well covered by reports for EMs (less than 15 percent), despite the larger size and integration of their financial sectors.
A similarly small proportion of reports covered fiscal-monetary and fiscal-BOP linkages. AEs did a better job on the latter—maybe because it includes spillovers to other countries (which under the Integrated Surveillance Decision should be examined for systemic countries).
Report Discusses Intersectoral Spillovers / Linkages
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Report Discusses Intersectoral Spillovers / Linkages
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Report Discusses Intersectoral Spillovers / Linkages
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30. The role of fiscal policy is often not examined in a sufficiently integrated way as part of the broader policy mix or in coordination with other policies. Depending on underlying economic conditions, the preferred combination of fiscal policy with other macroeconomic policies will differ (for instance, the balance of fiscal and monetary policies in supporting demand, or the balance of fiscal and wages policies to support employment growth). In countries where monetary policy is at the ZLB, the question of relative burdens on monetary and fiscal policy is particularly important. Only about half the Article IV reports in the sample discuss the policy mix explicitly, although another quarter provide a partial discussion. Where the policy mix is covered, Article IV reports tend to be better at covering the relationship between fiscal and monetary policies, as well as between fiscal and financial policies. Fewer reports cover linkages between fiscal policy and structural policies—perhaps to be expected given the Fund’s greater expertise in monetary and financial sector policies, but noteworthy given the increased attention to growth.
Report Explicitly Discusses the Policy Mix
(Percent of reports)
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Report Explicitly Discusses the Policy Mix
(Percent of reports)
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Report Explicitly Discusses the Policy Mix
(Percent of reports)
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E. Conclusions and Possible Options
31. The Fund’s fiscal policy analysis and advice has responded actively to changing economic circumstances. Throughout the crisis, the Fund has demonstrated flexibility and a willingness to explore new fiscal policy ground in response to evolving global developments and as part of the broader analytical debate. As the recession deepened in 2009, the Fund called for a coordinated and front-loaded fiscal stimulus in the short run, but also for a credible path towards fiscal normalization over the medium term. As the global economy showed signs of recovery in 2010, the Fund turned its focus to the need for medium-term exit strategies, but warned against an abrupt front-loaded tightening and advocated adequate coordination to mitigate risks to the economic turnaround. As the strength of the recovery waned after 2011, the Fund continued to caution against overdoing adjustment in the short term, while still calling for credible medium-term adjustment.
32. The Fund’s policy advice to individual countries through bilateral surveillance has been broadly aligned with its advice under multilateral surveillance and consistent across countries. Where there have been differences among countries, regions or income groups, these have generally reflected differences in cyclical and financing conditions. This is in keeping with Fund-wide advice and recent research highlighting that fiscal multipliers are state-contingent. In addition, long-run challenges vary across countries—as do demographics—warranting different emphases in the composition of fiscal measures that could secure long-run sustainability. The Fund’s advice has also emphasized the importance of fiscal institutions to help transition from short-term stimulus to medium-term consolidation. An important caveat, however, is that the sample is small and excludes program country cases.
33. In addition, policy advice varied across income groups largely reflecting differences in circumstances and challenges facing each group. In most AEs, the Fund’s fiscal policy advice shifted from countercyclical in 2009–10 to restoring sustainability from 2011 onwards because of the more limited fiscal space. In most EMs, however, fiscal policy advice remained clearly countercyclical for the entire period, partly because of the larger fiscal space. More attention to the composition of measures—a long-standing aspect of advice to LICs—appears to have gained ground in AEs during the crisis (more so than in EMs). The introduction of the MAC DSA helped to address an important inconsistency in the attention previously given to sustainability issues in AEs and EMs, compared with LICs.
34. There has been progress toward providing more depth and rigor to the Fund’s fiscal advice. Reports have paid increasing attention to the economic cycle, increasingly grounding advice in structural balances where feasible, and giving greater attention to fiscal multipliers and the implications of the composition and/or the size of adjustment for growth. Early experience with the MAC DSA appears to be helping to strengthen and broaden the analysis of fiscal risks. In part, this benefited from coherent Fund-wide advice and operationally-oriented research, which is an important lesson for the future.
35. Nevertheless, there is scope to build on this progress. The following are possible options that could help support the objective of deeper, more cohesive and consistent advice:
i) Fiscal advice should be presented in terms of a clear and well-justified anchor with an explicit link to long-term fiscal sustainability and development objectives. This could be specified either in level terms (e.g., a recommended fiscal balance, debt, expenditure, or revenue target) or change terms (i.e., recommended amount of fiscal adjustment).
ii) The Fund’s fiscal advice should continue to give more attention to cyclical considerations, including by explaining fiscal multipliers more carefully and, where feasible, through the use of the structural balance, as part of a range of fiscal indicators. However, given the operational and technical constraints in this area, the Fund should work toward strengthening the analytical basis for calculating and communicating structural fiscal balance estimates—which also encompasses analytical work to improve the measurement of potential output.
iii) In line with increased attention to the composition of fiscal measures, the Fund should invest more in ways to better support analysis and policy advice on expenditure measures (i.e., more concrete and actionable advice, especially in areas beyond health and pension spending). This could be supported by more Fund-wide research or operational guidance as well as closer collaboration with other institutions that have relevant expertise (e.g., the World Bank).
iv) To further promote a risk-based approach, the Fund’s fiscal advice should be based on a more comprehensive assessment of fiscal risks, including more attention to contingent liabilities, intersectoral or intergovernmental risks, and long-term challenges. In particular, “frontier” LICs could benefit from a broader assessment of risks—similar to the dimensions of risk in the MAC DSA approach—as these economies transition towards EM status. In the near-term, the Fund should make better use of existing balance sheet data, which would help provide a deeper assessment of fiscal risks. Over the longer-term, as fiscal accounting standards improve, the Fund should integrate information on more difficult-to-value assets and liabilities to support a comprehensive assessment of risks.
v) The Fund’s fiscal advice should consider the practical and political feasibility for policymakers. Surveillance should continue to offer candid, first-best economic advice even when it is obvious that it is not politically viable, as a way of anchoring practical policy discussions. In following up on past policy advice, however, reports should identify when the economic first-best or preferred policy advice is repeatedly rejected for political economy reasons and, in turn, explore policy alternatives that could deliver the same objectives and which may have better chances of being implemented.
vi) Fiscal policy analysis and advice should always be included in the discussion of the broader policy mix. The fiscal-monetary policy mix is particularly relevant and should figure prominently in the Fund’s advice, especially in countries where monetary policy is at the ZLB. The discussion of the policy mix should go beyond a simple description and give more attention to intersectoral connections and the coordination of policies, with a view to providing a well-integrated and comprehensive policy analysis. More comprehensive analysis of fiscal risks, including progress toward a more systematic focus on public sector balance sheets, could help promote this deeper analysis of intersectoral links.
Annex I. Sample for the Country Case Study
This annex summarizes the main considerations for selecting, and the main characteristics of, the country sample that was the basis for assessing the Fund’s bilateral fiscal policy advice for this 2014 TSR background study.
Methodology
The country sample was selected to include countries with a mix of fiscal challenges and vulnerabilities, while being as representative as possible of the Fund membership, according to the following criteria:
Exclude program countries facing financing constraints—both those currently under a program with drawings or at some point during the study period (2009–13). This criterion ensures that program design issues do not interfere with the assessment of policy advice delivered in the context of surveillance.
Include cases where fiscal issues have been a central policy challenge, including relatively more focus on countries affected by the crisis.
Exclude extreme or idiosyncratic cases, notably politically instable or extremely fragile countries.
Cover a fair representation of the Fund membership while facilitating comparability between countries. To the extent possible, the sample includes countries with a range of different policy characteristics and challenges (Table 1). It also includes pairs of countries with comparable characteristics, which facilitated the analysis of consistency of policy advice across countries.
Characteristics of the Country Sample
24 countries (see Table I).
Spans all five Area Departments
APD (6): China, India, Japan, Nepal, New Zealand, and Vietnam.
EUR (6): Belgium, Germany, Italy, Poland, Turkey, and the United Kingdom.
AFR (4): Cameroon, Mauritius, Nigeria, and South Africa.
MCD (4): Morocco, Kazakhstan, Lebanon, and Saudi Arabia.
WHD (4): Brazil, Peru, St. Lucia, and the United States.
Includes a mix of economic categories: 7 advanced economies, 14 emerging markets, and 3 low-income countries.
Overlaps partially with country samples of other TSR studies, including the 2014 TSR interviews and the 2014 TSR review of surveillance products.
2014 TSR Fiscal Policy Study: Country Sample and Characteristics by Region1
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
2014 TSR Fiscal Policy Study: Country Sample and Characteristics by Region1
| Countries | 2014 TSR Interviews2 | 2014 TSR AIV Review3 | Economic Category | Exchange Rate Regime | ||||
|---|---|---|---|---|---|---|---|---|
| Advanced | Emerging | LIC | Conventional Peg | Floating (incl. in Currency Union) | Other | |||
| AFR (4) | ||||||||
| Cameroon | 1 | 1 | 1 | |||||
| Mauritius | 1 | 1 | ||||||
| Nigeria | 1 | 1 | ||||||
| South Africa | 1 | 1 | 1 | |||||
| APD (6) | ||||||||
| China | 1 | 1 | 1 | 1 | ||||
| India | 1 | 1 | 1 | |||||
| Japan | 1 | 1 | 1 | |||||
| Nepal | 1 | 1 | ||||||
| New Zealand | 1 | 1 | 1 | 1 | ||||
| Vietnam | 1 | 1 | 1 | |||||
| EUR (6) | ||||||||
| Belgium | 1 | 1 | 1 | |||||
| Germany | 1 | 1 | 1 | 1 | ||||
| Italy | 1 | 1 | ||||||
| Poland | 1 | 1 | ||||||
| Turkey | 1 | 1 | 1 | |||||
| United Kingdom | 1 | 1 | 1 | 1 | ||||
| MCD (4) | ||||||||
| Morocco | 1 | 1 | 1 | 1 | ||||
| Kazakhstan | 1 | 1 | 1 | |||||
| Lebanon | 1 | 1 | 1 | |||||
| Saudi Arabia | 1 | 1 | 1 | 1 | ||||
| WHD (4) | ||||||||
| Brazil | 1 | 1 | 1 | 1 | ||||
| Peru | 1 | 1 | ||||||
| St. Lucia | 1 | 1 | 1 | 1 | ||||
| United States | 1 | 1 | 1 | 1 | ||||
| Total | 14 | 13 | 7 | 14 | 3 | 4 | 14 | 6 |
| Overall fiscal balance (% of GDP) | Gross debt (% of GDP) | CA balance (% of GDP) | Real GDP growth (%) | GDP per capita (U.S. Dollars) | Sovereign spread (basis points) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Countries | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 |
| AFR (4) | ||||||||||||
| Cameroon | -0.1 | -1.7 | 10.6 | 16.1 | -3.3 | -4.0 | 1.9 | 4.6 | 1 ,113 | 1 ,181 | … | … |
| Mauritius | -3.6 | -1.8 | 52.1 | 51.5 | -7.4 | -7.9 | 3.0 | 3.3 | 6,914 | 8,835 | 224 | 284 |
| Nigeria | -9.4 | 0.0 | 15.2 | 18.4 | 8.2 | 7.7 | 7.0 | 6.6 | 1 ,124 | 1 ,604 | … | … |
| South Africa | -4.9 | -4.3 | 31.6 | 42.1 | -4.0 | -5.2 | -1.5 | 2.5 | 5 ,683 | 7 ,314 | 301 | 206 |
| APD (6) | ||||||||||||
| China | -3.1 | -2.2 | 17.7 | 26.1 | 4.9 | 2.3 | 9.2 | 7.7 | 3 ,740 | 6 ,078 | 19 | 170 |
| India | -9.8 | -7.4 | 72.5 | 66.6 | -2.8 | -4.7 | 8.5 | 4.7 | 1 ,159 | 1 ,515 | 457 | 621 |
| Japan | -10.4 | -8.7 | 210.2 | 237.3 | 2.9 | 1.0 | -5.5 | 1.4 | 3 9,321 | 4 6,530 | -190 | -95 |
| Nepal | -2.6 | -0.6 | 39.3 | 34.1 | 4.2 | 4.8 | 4.5 | 4.9 | 484 | 690 | … | … |
| New Zealand | -1.5 | -1.6 | 25.7 | 37.5 | -2.3 | -4.1 | -1.4 | 2.6 | 2 7,621 | 3 8,385 | 234 | 187 |
| Vietnam | -6.0 | -4.8 | 46.9 | 50.0 | -6.5 | 5.8 | 5.4 | 5.2 | 1 ,181 | 1 ,753 | … | … |
| EUR (6) | ||||||||||||
| Belgium | -5.6 | -4.1 | 95.7 | 99.8 | -0.6 | -2.0 | -2.8 | -0.1 | 4 4,125 | 4 3,554 | 65 | 123 |
| Germany | -3.1 | 0.1 | 74.5 | 81.0 | 5.9 | 7.4 | -5.1 | 0.9 | 4 0,424 | 4 2,569 | 1 | -24 |
| Italy | -5.4 | -2.9 | 116.4 | 127.0 | -2.0 | -0.4 | -5.5 | -2.4 | 3 5,875 | 3 3,915 | 105 | 369 |
| Poland | -7.4 | -3.9 | 50.9 | 55.6 | -4.0 | -3.5 | 1.6 | 1.9 | 1 1,314 | 1 2,709 | 286 | 320 |
| Turkey | -6.0 | -1.8 | 46.1 | 36.2 | -2.0 | -6.2 | -4.8 | 2.2 | 8 ,527 | 1 0,523 | 619 | 655 |
| United Kingdom | -11.3 | -8.0 | 67.1 | 88.6 | -1.4 | -3.7 | -5.2 | 0.3 | 3 5,885 | 3 8,999 | 39 | 10 |
| MCD (4) | ||||||||||||
| Morocco | -1.8 | -7.3 | 48.0 | 60.2 | -5.4 | -9.7 | 4.8 | 2.7 | 2 ,885 | 2 ,951 | … | … |
| Kazakhstan | -1.3 | 4.5 | 10.2 | 12.4 | -3.6 | 0.3 | 1.2 | 5.0 | 7 ,119 | 1 2,034 | … | … |
| Lebanon | -8.2 | -8.7 | 145.6 | 135.7 | -12.6 | -15.7 | 10.3 | 1.5 | 8 ,274 | 9 ,609 | … | … |
| Saudi Arabia | -4.1 | 14.6 | 14.0 | 3.6 | 4.9 | 22.4 | 1.8 | 5.8 | 1 6,095 | 2 5,139 | … | … |
| WHD (4) | ||||||||||||
| Brazil | -3.3 | -2.8 | 66.8 | 68.2 | -1.5 | -2.4 | -0.3 | 1.0 | 8 ,472 | 1 1,437 | 868 | 683 |
| Peru | -1.5 | 2.1 | 27.1 | 20.5 | -0.6 | -3.4 | 0.9 | 6.3 | 4 ,362 | 6 ,550 | … | … |
| St. Lucia | -3.0 | -9.2 | 61.1 | 71.7 | -11.6 | -12.8 | -0.1 | -1.3 | 7 ,165 | 7 ,858 | … | … |
| United States | -14.7 | -9.7 | 86.1 | 102.4 | -2.6 | -2.7 | -2.8 | 2.8 | 4 6,907 | 5 1,709 | 0 | 0 |
| Memo Items | ||||||||||||
| Min | -14.7 | -9.7 | 10.2 | 3.6 | -12.6 | -15.7 | -5.5 | -2.4 | 484 | 690 | -190 | -95 |
| Max | -0.1 | 14.6 | 210.2 | 237.3 | 8.2 | 22.4 | 10.3 | 7.7 | 46,907 | 51,709 | 868 | 683 |
| Median | -4.5 | -2.8 | 49.4 | 53.5 | -2.1 | -3.1 | 1.0 | 2.6 | 7,720 | 10,066 | 165 | 197 |
| Std. Dev. | 3.7 | 5.3 | 46.8 | 51.2 | 5.1 | 7.7 | 4.8 | 2.6 | 16,043 | 17,176 | 280 | 256 |
| Color coding (for debt ratios): | |
| 0–30 | 60–90 |
| 30–60 | >90 |
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
2014 TSR Fiscal Policy Study: Country Sample and Characteristics by Region1
| Countries | 2014 TSR Interviews2 | 2014 TSR AIV Review3 | Economic Category | Exchange Rate Regime | ||||
|---|---|---|---|---|---|---|---|---|
| Advanced | Emerging | LIC | Conventional Peg | Floating (incl. in Currency Union) | Other | |||
| AFR (4) | ||||||||
| Cameroon | 1 | 1 | 1 | |||||
| Mauritius | 1 | 1 | ||||||
| Nigeria | 1 | 1 | ||||||
| South Africa | 1 | 1 | 1 | |||||
| APD (6) | ||||||||
| China | 1 | 1 | 1 | 1 | ||||
| India | 1 | 1 | 1 | |||||
| Japan | 1 | 1 | 1 | |||||
| Nepal | 1 | 1 | ||||||
| New Zealand | 1 | 1 | 1 | 1 | ||||
| Vietnam | 1 | 1 | 1 | |||||
| EUR (6) | ||||||||
| Belgium | 1 | 1 | 1 | |||||
| Germany | 1 | 1 | 1 | 1 | ||||
| Italy | 1 | 1 | ||||||
| Poland | 1 | 1 | ||||||
| Turkey | 1 | 1 | 1 | |||||
| United Kingdom | 1 | 1 | 1 | 1 | ||||
| MCD (4) | ||||||||
| Morocco | 1 | 1 | 1 | 1 | ||||
| Kazakhstan | 1 | 1 | 1 | |||||
| Lebanon | 1 | 1 | 1 | |||||
| Saudi Arabia | 1 | 1 | 1 | 1 | ||||
| WHD (4) | ||||||||
| Brazil | 1 | 1 | 1 | 1 | ||||
| Peru | 1 | 1 | ||||||
| St. Lucia | 1 | 1 | 1 | 1 | ||||
| United States | 1 | 1 | 1 | 1 | ||||
| Total | 14 | 13 | 7 | 14 | 3 | 4 | 14 | 6 |
| Overall fiscal balance (% of GDP) | Gross debt (% of GDP) | CA balance (% of GDP) | Real GDP growth (%) | GDP per capita (U.S. Dollars) | Sovereign spread (basis points) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Countries | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 | 2009 | 2012 |
| AFR (4) | ||||||||||||
| Cameroon | -0.1 | -1.7 | 10.6 | 16.1 | -3.3 | -4.0 | 1.9 | 4.6 | 1 ,113 | 1 ,181 | … | … |
| Mauritius | -3.6 | -1.8 | 52.1 | 51.5 | -7.4 | -7.9 | 3.0 | 3.3 | 6,914 | 8,835 | 224 | 284 |
| Nigeria | -9.4 | 0.0 | 15.2 | 18.4 | 8.2 | 7.7 | 7.0 | 6.6 | 1 ,124 | 1 ,604 | … | … |
| South Africa | -4.9 | -4.3 | 31.6 | 42.1 | -4.0 | -5.2 | -1.5 | 2.5 | 5 ,683 | 7 ,314 | 301 | 206 |
| APD (6) | ||||||||||||
| China | -3.1 | -2.2 | 17.7 | 26.1 | 4.9 | 2.3 | 9.2 | 7.7 | 3 ,740 | 6 ,078 | 19 | 170 |
| India | -9.8 | -7.4 | 72.5 | 66.6 | -2.8 | -4.7 | 8.5 | 4.7 | 1 ,159 | 1 ,515 | 457 | 621 |
| Japan | -10.4 | -8.7 | 210.2 | 237.3 | 2.9 | 1.0 | -5.5 | 1.4 | 3 9,321 | 4 6,530 | -190 | -95 |
| Nepal | -2.6 | -0.6 | 39.3 | 34.1 | 4.2 | 4.8 | 4.5 | 4.9 | 484 | 690 | … | … |
| New Zealand | -1.5 | -1.6 | 25.7 | 37.5 | -2.3 | -4.1 | -1.4 | 2.6 | 2 7,621 | 3 8,385 | 234 | 187 |
| Vietnam | -6.0 | -4.8 | 46.9 | 50.0 | -6.5 | 5.8 | 5.4 | 5.2 | 1 ,181 | 1 ,753 | … | … |
| EUR (6) | ||||||||||||
| Belgium | -5.6 | -4.1 | 95.7 | 99.8 | -0.6 | -2.0 | -2.8 | -0.1 | 4 4,125 | 4 3,554 | 65 | 123 |
| Germany | -3.1 | 0.1 | 74.5 | 81.0 | 5.9 | 7.4 | -5.1 | 0.9 | 4 0,424 | 4 2,569 | 1 | -24 |
| Italy | -5.4 | -2.9 | 116.4 | 127.0 | -2.0 | -0.4 | -5.5 | -2.4 | 3 5,875 | 3 3,915 | 105 | 369 |
| Poland | -7.4 | -3.9 | 50.9 | 55.6 | -4.0 | -3.5 | 1.6 | 1.9 | 1 1,314 | 1 2,709 | 286 | 320 |
| Turkey | -6.0 | -1.8 | 46.1 | 36.2 | -2.0 | -6.2 | -4.8 | 2.2 | 8 ,527 | 1 0,523 | 619 | 655 |
| United Kingdom | -11.3 | -8.0 | 67.1 | 88.6 | -1.4 | -3.7 | -5.2 | 0.3 | 3 5,885 | 3 8,999 | 39 | 10 |
| MCD (4) | ||||||||||||
| Morocco | -1.8 | -7.3 | 48.0 | 60.2 | -5.4 | -9.7 | 4.8 | 2.7 | 2 ,885 | 2 ,951 | … | … |
| Kazakhstan | -1.3 | 4.5 | 10.2 | 12.4 | -3.6 | 0.3 | 1.2 | 5.0 | 7 ,119 | 1 2,034 | … | … |
| Lebanon | -8.2 | -8.7 | 145.6 | 135.7 | -12.6 | -15.7 | 10.3 | 1.5 | 8 ,274 | 9 ,609 | … | … |
| Saudi Arabia | -4.1 | 14.6 | 14.0 | 3.6 | 4.9 | 22.4 | 1.8 | 5.8 | 1 6,095 | 2 5,139 | … | … |
| WHD (4) | ||||||||||||
| Brazil | -3.3 | -2.8 | 66.8 | 68.2 | -1.5 | -2.4 | -0.3 | 1.0 | 8 ,472 | 1 1,437 | 868 | 683 |
| Peru | -1.5 | 2.1 | 27.1 | 20.5 | -0.6 | -3.4 | 0.9 | 6.3 | 4 ,362 | 6 ,550 | … | … |
| St. Lucia | -3.0 | -9.2 | 61.1 | 71.7 | -11.6 | -12.8 | -0.1 | -1.3 | 7 ,165 | 7 ,858 | … | … |
| United States | -14.7 | -9.7 | 86.1 | 102.4 | -2.6 | -2.7 | -2.8 | 2.8 | 4 6,907 | 5 1,709 | 0 | 0 |
| Memo Items | ||||||||||||
| Min | -14.7 | -9.7 | 10.2 | 3.6 | -12.6 | -15.7 | -5.5 | -2.4 | 484 | 690 | -190 | -95 |
| Max | -0.1 | 14.6 | 210.2 | 237.3 | 8.2 | 22.4 | 10.3 | 7.7 | 46,907 | 51,709 | 868 | 683 |
| Median | -4.5 | -2.8 | 49.4 | 53.5 | -2.1 | -3.1 | 1.0 | 2.6 | 7,720 | 10,066 | 165 | 197 |
| Std. Dev. | 3.7 | 5.3 | 46.8 | 51.2 | 5.1 | 7.7 | 4.8 | 2.6 | 16,043 | 17,176 | 280 | 256 |
| Color coding (for debt ratios): | |
| 0–30 | 60–90 |
| 30–60 | >90 |
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
For each region, the numbers in brackets represent the number of countries from this region in the sample.
The country sample for the 2014 TSR interviews includes 27 countries: Burkina Faso, Congo Republic of, Seychelles, Uganda, South Africa, China, India, Japan, New Zealand, Philippines, France, Germany, Portugal, Russia, Sweden, Turkey, the United Kingdom, Armenia, Kyrgyz Republic, Lebanon, Morocco, Saudi Arabia, Brazil, Chile, Mexico, St. Lucia, and the United States.
The country sample for the 2014 TSR review of surveillance products includes 50 countries among which 3 currency unions, 9 advanced economies, 20 emerging markets, and 18 low-income countries.
Annex II. Methodology
This study designed an Excel template to compile data on which to assess the depth and consistency of fiscal analysis and advice across countries and relative to the Fund’s multilateral advice to AEs, EMs, and LICs. The template helped identify the main discrepancies and commonalities between bilateral and multilateral advice (“vertical consistency”) over time. It was also used to check whether countries in similar circumstances have received similar advice (“horizontal consistency” or evenhandedness).
The template’s rows correspond to the criteria used for fiscal advice, which are grouped into four main categories: size, composition, pace, and supporting policies (fiscal institutions and other macroeconomic and structural policies). The choice of questions was based on the main recommendations found in multilateral publications.
For each country, the template was filled out with data and information extracted from five Article IV reports over 2009–13. When no staff report was available for 2009, the 2008 Article IV report was used to collect and analyze the policy advice provided at the onset of the crisis.
| 1. Country Identification | |||
| State of Public Finances | 1. | GG debt (% GDP, eop) | • Numeric. |
| 2. | GG deficit (% GDP) | • Numeric. | |
| Macro Conditions | 3. | GDP growth (real) | • Numeric. |
| 4. | Inflation (CPI, average) | • Numeric. | |
| Market Pressures/Access | 5. | No market pressures | • Yes / No. |
| 6. | Market pressures29 | • Yes / No. | |
| 7. | Loss of market access | • Yes / No. | |
| 2. General | |||
| 8 | Are fiscal issues or vulnerabilities a major policy concern for this country? | • Yes/No. | |
| 9. | Does the fiscal analysis/policy advice take account of and discuss administrative capacity constraints? |
| |
| 3. Type of Fiscal Advice | |||
| Above-the-Line Advice | 10. | Is the fiscal advice about discretionary fiscal policy or automatic stabilizers? | |
| 11. | If the fiscal advice is about automatic stabilizers, is the advice on? |
| |
| 12. | If the fiscal advice is about discretionary policy, is the advice on? (please check all that apply) |
| |
| 13. | If the short-term fiscal advice is about discretionary policy, are the recommendations? |
| |
| 14. | Is the cyclically adjusted (or structural) balance used for fiscal policy analysis/advice? |
| |
| 15. | Is the non-oil fiscal balance used for fiscal policy analysis/advice? |
| |
| Below-the-line advice | 16. | Are there any below-the line recommendations? (please check all that apply) |
|
| Medium-term advice | 17. | Is there an assessment and advice on the medium-term fiscal challenges, objectives and outlook? |
|
| 18. | If yes or partially, how well is this integrated in the fiscal policy analysis and recommendations? |
| |
| 19. | Does the report reconcile the short- and medium-term policy recommendations? |
| |
| 20. | Does the report include a (public) debt sustainability analysis? |
| |
| Type of measures | 21. | Does the report recommend temporary or permanent measures? |
|
| 4. Size | |||
| 22. | Is there an analysis of the size of fiscal actions?33 |
| |
| 23. | Which criteria were taken into account? (Please check all that apply) | ||
| 24. | Does the report discuss fiscal risks? |
| |
| 25. | If yes or partially, which risks are discussed? (please check all that apply) |
| |
| 5. Composition | |||
| 26. | Does the report provide advice on the overall composition of fiscal packages (split between total spending and total revenue)? |
| |
| 27. | In general, does the report put more emphasis on expenditure measures than revenue measures? |
| |
| 28. | Does the report recommend specific discretionary fiscal measures39? |
| |
| 29. | If yes, please specify the broad nature of these measures40. |
| |
| 30. | Does the report discuss explicitly some expenditure measures? |
| |
| 31. | Does the report discuss explicitly some tax (and tax expenditure) measures? |
| |
| 32. | If the advice is on taxes, is it about? (please check all that apply) |
| |
| 33. | Which criteria were taken into account in the fiscal advice on composition? (please check all that apply) | ||
| 6. Pace | |||
| 34. | Does the fiscal advice deal with the pace/phasing of fiscal actions? |
| |
| 35. | If the report recommends fiscal adjustment, does the pace differ from the 1 percent per year benchmark? | ||
| 36. | If the report recommends fiscal adjustment, does the advice take into account the risks/costs of frontloading? 48 |
| |
| 37. | If yes, which risks/costs were identified? |
| |
| 38. | If the report recommends fiscal adjustment, does the advice take into account the risk/costs backloading?49 |
| |
| 39. | If yes, which risks/costs were identified? |
| |
| 40. | Does the staff report identify that the country is subject to market pressures/financing constraints? |
| |
| 41. | If yes, are these constraints reflected in the advice on the pace of fiscal actions? | ||
| 42. | Does the report discuss specifically the tradeoffs between sustainability and growth? | ||
| 43. | Does the advice on pace take into account political economy factors, such as political acceptability credibility? |
| |
| 7. Fiscal Institutions | |||
| 44. | Does the policy advice take account of fiscal institutions? |
| |
| 45. | If yes or partially, which institutions are covered by the fiscal advice? (please check all that apply) | ||
| 46. | If yes or partially, how well is this integrated in the general fiscal policy analysis and recommendations? |
| |
| 8. Policy Mix | |||
| 4. | Does the report explicitly discuss the policy mix -the relationship between fiscal, financial, monetary, external and/or structural policy? |
| |
| 48. | If yes, which other policies are discussed in relation to fiscal policy? (please check all that apply) | ||
| 49. | Does the report discuss intersectoral spillovers or linkages? (please check all that apply) |
| |
| 1. Country Identification | |||
| State of Public Finances | 1. | GG debt (% GDP, eop) | • Numeric. |
| 2. | GG deficit (% GDP) | • Numeric. | |
| Macro Conditions | 3. | GDP growth (real) | • Numeric. |
| 4. | Inflation (CPI, average) | • Numeric. | |
| Market Pressures/Access | 5. | No market pressures | • Yes / No. |
| 6. | Market pressures29 | • Yes / No. | |
| 7. | Loss of market access | • Yes / No. | |
| 2. General | |||
| 8 | Are fiscal issues or vulnerabilities a major policy concern for this country? | • Yes/No. | |
| 9. | Does the fiscal analysis/policy advice take account of and discuss administrative capacity constraints? |
| |
| 3. Type of Fiscal Advice | |||
| Above-the-Line Advice | 10. | Is the fiscal advice about discretionary fiscal policy or automatic stabilizers? | |
| 11. | If the fiscal advice is about automatic stabilizers, is the advice on? |
| |
| 12. | If the fiscal advice is about discretionary policy, is the advice on? (please check all that apply) |
| |
| 13. | If the short-term fiscal advice is about discretionary policy, are the recommendations? |
| |
| 14. | Is the cyclically adjusted (or structural) balance used for fiscal policy analysis/advice? |
| |
| 15. | Is the non-oil fiscal balance used for fiscal policy analysis/advice? |
| |
| Below-the-line advice | 16. | Are there any below-the line recommendations? (please check all that apply) |
|
| Medium-term advice | 17. | Is there an assessment and advice on the medium-term fiscal challenges, objectives and outlook? |
|
| 18. | If yes or partially, how well is this integrated in the fiscal policy analysis and recommendations? |
| |
| 19. | Does the report reconcile the short- and medium-term policy recommendations? |
| |
| 20. | Does the report include a (public) debt sustainability analysis? |
| |
| Type of measures | 21. | Does the report recommend temporary or permanent measures? |
|
| 4. Size | |||
| 22. | Is there an analysis of the size of fiscal actions?33 |
| |
| 23. | Which criteria were taken into account? (Please check all that apply) | ||
| 24. | Does the report discuss fiscal risks? |
| |
| 25. | If yes or partially, which risks are discussed? (please check all that apply) |
| |
| 5. Composition | |||
| 26. | Does the report provide advice on the overall composition of fiscal packages (split between total spending and total revenue)? |
| |
| 27. | In general, does the report put more emphasis on expenditure measures than revenue measures? |
| |
| 28. | Does the report recommend specific discretionary fiscal measures39? |
| |
| 29. | If yes, please specify the broad nature of these measures40. |
| |
| 30. | Does the report discuss explicitly some expenditure measures? |
| |
| 31. | Does the report discuss explicitly some tax (and tax expenditure) measures? |
| |
| 32. | If the advice is on taxes, is it about? (please check all that apply) |
| |
| 33. | Which criteria were taken into account in the fiscal advice on composition? (please check all that apply) | ||
| 6. Pace | |||
| 34. | Does the fiscal advice deal with the pace/phasing of fiscal actions? |
| |
| 35. | If the report recommends fiscal adjustment, does the pace differ from the 1 percent per year benchmark? | ||
| 36. | If the report recommends fiscal adjustment, does the advice take into account the risks/costs of frontloading? 48 |
| |
| 37. | If yes, which risks/costs were identified? |
| |
| 38. | If the report recommends fiscal adjustment, does the advice take into account the risk/costs backloading?49 |
| |
| 39. | If yes, which risks/costs were identified? |
| |
| 40. | Does the staff report identify that the country is subject to market pressures/financing constraints? |
| |
| 41. | If yes, are these constraints reflected in the advice on the pace of fiscal actions? | ||
| 42. | Does the report discuss specifically the tradeoffs between sustainability and growth? | ||
| 43. | Does the advice on pace take into account political economy factors, such as political acceptability credibility? |
| |
| 7. Fiscal Institutions | |||
| 44. | Does the policy advice take account of fiscal institutions? |
| |
| 45. | If yes or partially, which institutions are covered by the fiscal advice? (please check all that apply) | ||
| 46. | If yes or partially, how well is this integrated in the general fiscal policy analysis and recommendations? |
| |
| 8. Policy Mix | |||
| 4. | Does the report explicitly discuss the policy mix -the relationship between fiscal, financial, monetary, external and/or structural policy? |
| |
| 48. | If yes, which other policies are discussed in relation to fiscal policy? (please check all that apply) | ||
| 49. | Does the report discuss intersectoral spillovers or linkages? (please check all that apply) |
| |
Prepared by an FAD-led team, comprising Bernardin Akitoby (lead), Luc Eyraud, Serhan Cevik, Carolina Correa Caro (all FAD), Myrvin Anthony, M. Astou Diouf, Mark Flanagan (co-lead), David Moore, and Karen Ongley (all SPR). Hugh Bredenkamp (SPR) and Martine Guerguil (FAD) provided general guidance.
Annexes I and II describe the country sample and the review methodology, respectively. An important caveat is that the sample is small and excludes program country cases (to ensure a focus on the assessment of fiscal policy advice delivered in the context of surveillance). This leads to the exclusion of advanced economy program cases and, as many low-income countries are program cases, this limits the number of LICs in the sample.
The pre-crisis rejection of discretionary fiscal policy as an effective countercyclical policy instrument was not universal. It was perhaps stronger in academia than among policymakers. Discretionary fiscal stimulus measures were sometimes deployed in the face of severe shocks (e.g., Japan during the early 1990s). These broad issues were also discussed in the paper on Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies (IMF 2013).
Part of the pre-crisis literature found cases of negative multipliers, while some studies found that fiscal consolidation episodes could be expansionary (e.g., Francesco Giavazzi & Marco Pagano, Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries, NBER Macroeconomics Annual 1990, Volume 5, pages 75–122, National Bureau of Economic Research).
This included contributions from Fund staff, including the April 2012 Fiscal Monitor (in particular, Chapter 3 and Appendix 1) and Growth Forecast Errors and Fiscal Multipliers by Olivier Blanchard and Daniel Leigh (WP/13/1).
For example, with regard to Reinhart and Rogoff’s analysis, see: Reinhart, C., and K. Rogoff, “Growth in a Time of Debt”, American Economic Review: Papers & Proceedings, Vol. 100, No. 2, pp. 573–78; Herndon, T., M. Ash, and R. Pollin, 2013, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff”, Political Economy Research Institute, Working Paper No. 322; and Pescatori, A., D. Sandri, and J. Simon, Debt and Growth: Is There a Magic Threshold?, IMF WP/14/34.
For example, Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies (IMF 2013).
Optimizing the design of automatic stabilizers can help reduce lags. But as the size of automatic stabilizers ultimately reflects socio-political choices on the size of government, some countries may choose to rely on discretionary measures for counter-cyclical policy action. (See Blanchard, Olivier, Giovanni Dell’Ariccia, and Paolo Mauro, 2010, Rethinking Macroeconomic Policy, IMF SPN/10/03.)
With the possible exception of countries with very high levels of domestic savings, like Japan.
This section discusses the Fund’s high-level fiscal policy analysis and advice as articulated in multilateral surveillance products (namely the World Economic Outlook and Fiscal Monitor), policy and other analytical papers, and speeches.
This approach was consistent with historical episodes and model simulations predicting that multipliers would be larger during such episodes (e.g., Perotti, 1999; Blanchard and Perotti, 2002; Spilimbergo, Symansky, Blanchard, and Cottarelli, 2008). Later studies, once data became available, validated this recalibration of fiscal advice during the crisis (e.g., Blanchard and Leigh, 2013).
For example, Exiting from Crisis Intervention Policies, IMF 2010, or Ten Commandments for Fiscal Adjustment in Advanced Economies, Blanchard and Cottarelli, IMF 2010.
Emerging from the Global Crisis—Macroeconomic Challenges Facing Low-Income Countries, 2010; Fuel and Food Price Subsidies—Issues and Reform Options, IMF 2008; Energy Subsidy Reform: Lessons and Implications, IMF 2013; Revenue Mobilization in Developing Countries, IMF 2011; Managing Global Growth Risks and Commodity Price Shocks—Vulnerabilities and Policy Challenges for Low-Income Countries, IMF 2011; Macroeconomic Policy Frameworks for Resource-Rich Developing Countries, IMF 2012; Fiscal Regimes for Extractive Industries—Design and Implementation, IMF 2012.
As noted earlier, the sample is small and excludes program cases to ensure a focus on policy advice delivered in the context of surveillance. This leads to the exclusion of AE program cases and limits the coverage of LICs.
For countries that did not have an Article IV report in 2009, the analysis is based on the 2008 report.
Countries with effective automatic stabilizers could smooth output shocks without relying on large discretionary fiscal actions.
With program countries excluded from the sample, only a few countries in the sample experienced any significant market pressures (e.g., Italy). However, when worries of a euro area breakup peaked in 2011, fear of contagion may also have influenced the observed shift toward consolidation for other countries in the sample (e.g., Belgium, Poland, and Turkey).
There was no clear pattern among the relatively small sample of LICs.
In addition to standard research papers on multipliers (reported in the April 2012 Fiscal Monitor and October 2012 WEO), staff guidance was issued in November 2013.
Box 1 describes the Fund’s multilateral fiscal advice in this area. See also the November 2010 Fiscal Monitor, “Fiscal Exit: From Strategy to Implementation.“ While the 1 percent annual adjustment is a benchmark, country teams calibrated the appropriate pace of consolidation depending on, among other things, initial fiscal conditions, the state of the economy, and the extent of market pressures.
See, for example, the IMF policy papers on Fiscal Rules: Anchoring Expectations for Sustainable Public Finances (December 16, 2009) or Strategies for Fiscal Consolidation in the Post-Crisis World (February 4, 2010).
A process of “hysteresis” links the short-term economic cycle to the long-term trend, so that a temporary change in economic conditions has a tendency to become permanent.
See Fiscal Transparency, Accountability, and Risk, IMF 2012.
The Government Finance Statistics Manual 2001 (and its update GFSM 2014) as well as the 2011 Public Sector Debt Statistics: Guide for Compilers and Users provides clear and internationally agreed guidelines for constructing public sector balance sheets.
These features are mandatory, and thus likely to be covered, in the European Union.
Staff recommendations may nonetheless have been informed by TA. This is difficult to measure. It should also be noted that the bulk of IMF TA is delivered to program countries, which are not represented in this sample, so surveillance experience should not be seen as indicative of the broader integration of TA into Fund work.
The economic case for more gradual consolidation (less damaging to growth) is distinct from a political economy case for more consolidation upfront to get the pain out of the way and limit adjustment fatigue.
Sharp increase in sovereign yields, but continued market access.
Change in structural balance.
No change in structural balance.
For example, fiscal advice is only about fiscal institutions.
For example, calculation of fiscal adjustment needs or size of stimulus.
For example, public DSA, health and pension spending pressures, r-g.
For example, external DSA, twin deficits.
For example, market pressures, rollover risk, or financing needs.
For example, output gap, inflation, or unemployment.
Including fiscal multipliers and debt overhang.
Excluding institutional reforms.
For example, cuts in transfers, VAT increase, etc.
For example, high level (ratio to GDP) of spending or tax.
For example, large adjustment needs may require relying on both revenue and spending measures.
For example, subsidy reform.
For example, wealth tax.
For example, fiscal multipliers.
Adjustment greater than 0.5 or less than 1.5 per year.
Adjustment of 0.5 to 1.5 per year.
For example, higher multipliers, stall speed, or hysteresis.
For example, debt overhang or multiple equilibria.
For example, a detailed or binding framework.
For example, structural, escape clauses, automatic correction mechanisms or national legislation.
For example, better fiscal reporting or communication strategy.
For example, impact of the zero lower bound on fiscal multipliers.
For example, complementarity between labor and product market reforms and fiscal consolidation.
