Fiscal Arrangements in Federations: Four Lessons for Europe


Martine GuerguilBy Martine Guerguil 

Does the European Union need closer fiscal integration, and in particular a stronger fiscal center, to become more resilient to economic shocks? A new IMF book, Designing a European Fiscal Union: Lessons from the Experience of Fiscal Federations, published by Routledge, examines the experience of 13 federal states to help inform the debate on this issue. It analyzes in detail their practices in devolving responsibilities from the subnational to the central level, compares them to those of the European Union, and draws lessons for a possible future fiscal union in Europe.

The book sets out to answer three sets of questions: (1) What is the role of centralized fiscal policies in federations, and hence the size, features, and functions of the central budget? (2) What institutional arrangements are used to coordinate fiscal policy between the federal and subnational levels? (3) What are the links between federal and subnational debt, and how have subnational financing crises been handled, when they occurred?

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Investment in the Euro Area: Why Has It Been So Weak?


By Bergljot Bjørnson BarkbuS. Pelin Berkmen, and Hanni Schölermann

Investment in the euro area, and particularly private investment, has not recovered since the onset of the global financial crisis.

In fact, the decline in investment has been much more drastic than in other financial crises; and is more in line with the most severe of these crises (see Chart 1). The October 2014 World Economic Outlook showed that many governments cut investment because their finances became strained during the crisis. In addition, housing investment collapsed in some countries, reflecting a natural scaling back after an unsustainable boom. But what is holding back private non-residential investment?

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How Can Egypt Achieve Economic Stability and Better Living Standards Together?


Chris JarvisBy Christopher Jarvis

(Version in عربي)

Egypt currently faces what may seem to be conflicting objectives. On the one hand, there’s an urgent need to restore economic stability—by achieving lower budget deficits, public debt and inflation, and adequate foreign exchange reserves. At the same time, there’s a long-standing need to achieve better standards of living—with more jobs, less poverty, and better health and education systems—one of the key reasons why people took to the streets in 2011.

Some might think that those two goals don’t go together—that the actions needed to reduce the budget and external deficits will necessarily take away from jobs and growth. But that’s not true. Some of the same policies that will improve Egypt’s financial situation can also help improve living standards.

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Disinflation in EU Countries outside the Eurozone


By Plamen Iossifov and Jiri Podpiera

Inflation has been falling sharply across Europe since 2012 (see Charts 1 and 2). Across Central and Eastern Europe (CEE), inflation expectations have also drifted down especially among countries who peg their currencies to the euro (Bulgaria, Croatia, as well as Lithuania, which adopted the euro on January 1, 2015), but also in those that target their inflation rate (the Czech Republic, Hungary, Poland, and Romania).

The recent drop in world oil prices has re-ignited the debate about good vs. bad disinflation. For the euro area, risks from low inflation have been discussed in the March 2014 iMFdirect post. Our blog examines the causes and potential consequences of falling inflation from the perspective of EU countries outside the euro zone.

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A Big Step Forward for Bolstering Financial Inclusion


By David Marston, Era Dabla-Norris, and D. Filiz Unsal

(version in Español)

Economists are paying increasing attention to the link between financial inclusion—greater availability of and access to financial services—and economic development. In a new paper, we take a closer look at exactly how financial inclusion impacts a country’s economy and what policies are most effective in promoting it.

The new framework developed in this paper allows us to identify barriers to financial inclusion and see how lifting these barriers might affect a country’s output and level of inequality.  Because the more you know about what stands in the way of financial inclusion, the better you can be at designing policies that help foster it.

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Learning to Live with Cheaper Oil in the Middle East


masood-ahmedBy Masood Ahmed

(Version in عربي)

The steep decline in global oil prices, by 55 percent since last September, has changed the economic dynamics of oil exporters in the Middle East and North Africa. Our update of the Regional Economic Outlook, released yesterday, shows that these countries are now faced with large export and government revenue losses, which are expected to reach about $300 billion (21 percent of GDP) in the Gulf Cooperation Council and about $90 billion (10 percent of GDP) in other oil-exporting countries.

Where prices will eventually settle is, of course, uncertain, making it hard for policymakers to gauge how much of the bane is temporary in nature and what share of it they should expect to last.

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(Yet) Another Year of Subpar Growth: Latin America and the Caribbean in 2015


Alejandro WernerBy Alejandro Werner

(version in Español and Português)

The turn of the year usually brings a fresh dose of optimism. Yet, worries dominate across much of Latin America and the Caribbean today, as 2015 marks yet another year of reduced growth expectations. Regional growth is projected at just 1¼ percent, about the same low rate as in 2014 and almost 1 percentage point below our previous forecast. Challenging external conditions are an important drag for many countries. Still, it’s not too late for some good New Year’s resolutions to address domestic weaknesses and improve growth prospects.

Werner blog.chart 1 Continue reading

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