Signs of Fiscal Progress: Will It Be Enough?

Posted on July 18, 2012 by iMFdirect

By Carlo Cottarelli

(Versions in  عربي, 中文, Español, Français, Русский, 日本語)

We’ve just updated our latest assessment of the state of government finances, debts, and deficits in advanced and emerging economies.

Fiscal adjustment is continuing in the advanced economies at a speed that is broadly appropriate, and roughly what we projected three months ago. In emerging economies there’s a pause in fiscal adjustment this year and next, but this too is generally appropriate, given that many of these countries have low debt and deficits.

The improvement in fiscal conditions in many advanced economies is welcome, but it’s going to take more than lower deficits to get countries under market pressure out of the crosshairs.
(more…)

Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Employment, Europe, Fiscal policy, Fiscal Stimulus, growth, IMF, International Monetary Fund, Public debt | Tagged: , , , , , , , , , , , , , , , , , | 3 Comments »

Fiscal Adjustment: Too Much of a Good Thing?

Posted on January 29, 2012 by iMFdirect

By Carlo Cottarelli

(Versions in  عربي, 中文, Español, Français, Русский, 日本語)

The IMF has argued for some time that the very high public debt ratios in many advanced economies should be brought down to safer levels through a gradual and steady process. Doing either too little or too much both involve risks: not enough fiscal adjustment could lead to a loss of market confidence and a fiscal crisis, potentially killing growth; but too much adjustment will hurt growth directly.

At times over the last couple of years we called on countries to step up the pace of adjustment when we thought they were moving too slowly.

Instead, in the current environment, I worry that some might be going too fast.

Risk to recovery

The latest update of the Fiscal Monitor shows that fiscal adjustment is proceeding pretty quickly in the advanced economies—on average the deficit is projected to fall by a total of 2 percentage points of GDP in 2011-12. The decline is even larger in the euro area—about 3 percentage points of GDP. In a reasonably good growth environment this pace of adjustment would be fine. But in the current weaker macroeconomic environment bringing deficits down this quickly could pose a risk for the economic recovery. (more…)

Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Finance, Fiscal policy, Public debt | Tagged: , , , , , , , , , , , , | 11 Comments »

How Iceland Recovered from its Near-Death Experience

Posted on October 26, 2011 by iMFdirect

 By Poul M. Thomsen

(Versions in Español and Français)

When I traveled to Reykjavik in October 2008 to offer the IMF’s assistance, the situation there was critical. The country’s three main banks—which made up almost the entire financial system—had just collapsed within a week of each other. The sense of fear and shock were palpable—few, if any, countries had ever experienced such a catastrophic economic crash.

There was a lot of concern that a disorderly depreciation of the exchange rate would be ruinous for households and companies if nothing was done or that deposit runs would cripple what was left of the financial system. The scale of the uncertainty was staggering―the three banks had assets worth more than 1,000 percent of GDP, and no one knew at that point how large the losses would turn out to be and how they would be divided between Icelanders and foreigners.

Today, three years later, it is worth reflecting on how far Iceland―a country of just 320,000 people―has come since those dark days back in 2008. (more…)

Filed under: Advanced Economies, Economic Crisis, Financial Crisis, Financial regulation, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 15 Comments »

Union Jack: Be Nimble, Be Quick

Posted on August 1, 2011 by iMFdirect

By Ajai Chopra

The U.K. government should be nimble in its policy response if it looks as though the economy is headed for a prolonged period of weak growth, high unemployment, and subdued inflation. Currently, we don’t expect this scenario to happen. But if such a scenario appears to be in prospect, we recommend responding quickly with some combination of further quantitative easing by the Bank of England and temporary tax cuts.

The most likely scenario for the U.K. economy is that it will gradually recover, although it will face continued headwinds from a soft housing market, household and financial sector deleveraging, and ongoing consolidation of the budget. Against this, the economy should get a push from private investment and an increase in exports driven by the global recovery. Labor productivity may also rebound and improve competitiveness.

Led by these forces, the IMF is expecting a bumpy and uneven recovery in the U.K. and our updated growth forecast for the near term, taking into account the recent GDP release for the second quarter, will be published with the September World Economic Outlook. Over the medium term, we expect growth to accelerate gradually to about 2½ percent. (more…)

Filed under: Advanced Economies, Europe, Fiscal policy, Fiscal Stimulus | Tagged: , , , , , , , , | 8 Comments »

Shifting Gears: Where the Rubber Meets the Fiscal Road

Posted on April 12, 2011 by iMFdirect

By Carlo Cottarelli

Undertaking a sizable fiscal adjustment is a lot like driving up a tall mountain: it’s hard work, it can take a long time, and you don’t want to run out of fuel partway up the incline. Countries are starting the climb, cutting back government deficits and debt levels, but according to our analysis often current plans aren’t enough to get countries where they need and want to go.

The plans in place are large by historical standards, which brings with it difficult choices, and particular risks and uncertainties. Let me fill you in on what these are. (more…)

Filed under: Economic Crisis, Fiscal policy, International Monetary Fund, Public debt | Tagged: , , , , , , , , , , , , | 1 Comment »

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