Oil Prices and Public Finances: A Double-Edged Sword


By Benedict Clements and Marta Ruiz-Arranz 

(Versions in 中文, Français, 日本語Русскийعربي and Español)

Plunging oil prices have taken the public finances on an exciting ride the past six months. Oil prices have fallen about 45 percent since September (see April 2015 World Economic Outlook), putting a big dent in the revenues of oil exporters, while providing oil importers an unexpected windfall.  How has the decline in oil prices affected the public finances, and how should oil importers and exporters adjust to this new state of affairs?

In the April 2015 Fiscal Monitor, we argue that the oil price decline provides a golden opportunity to initiate serious energy subsidy and taxation reforms that would lock in savings, improve the public finances and boost long-term economic growth.

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Measure to Measure: The Effect of Fiscal Policy on Growth and Stability


Vitor GasparBy Vitor Gaspar

Does fiscal policy respond systematically to economic activity? Can fiscal policy promote macroeconomic stability? Does greater stability support stronger growth? The answer is yes on all counts. This finding, while seemingly obvious, is now backed by numbers to match each question. The April 2015 Fiscal Monitor explores how.

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Growth Dividend from Stabilizing Fiscal Policies


Xavier DebrunBy Xavier Debrun 

(Versions in عربي中文, FrançaisРусский日本語and Español)

Anyone can easily picture an economy where instability, stagnation and runaway government deficits converge into a perfect storm. Yet the simple mirror image of stability, growth, and balanced budgets currently seems odd to many. And with monetary policy looking breathless, some even wonder whether sacrificing fiscal sanity for short-term growth might not be worth a try.

In any economic debate, looking at the data is always a good starting point. And the latest issue of the Fiscal Monitor does exactly that. Our study looks at the experience with fiscal stabilization during the past three decades in a broad sample of 85 advanced, emerging market, and developing economies. The message is loud and clear: governments can use fiscal policy to smooth fluctuations in economic activity, and this can lead to higher medium-term growth. This essentially means governments need to save in good times so that they can use the budget to stabilize output in bad times. In advanced economies, making fiscal policies more stabilizing could cut output volatility by about 15 percent, with a growth dividend of about 0.3 percentage point annually.

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Fiscal Policy And Structural Reform


Vitor GasparBy Vitor Gaspar 

One of the big questions to emerge from the global financial crisis, especially in the euro area, is how to raise a country’s potential growth while restoring healthy public finances. For example, the euro area— despite some favorable news recently — faces marked-down growth prospects alongside high levels of public debt. The combination of high debt and tepid potential growth underscores the importance of improving prospects for sustained growth and safe and resilient public finances. A fundamental question then arises: what is the relation between fiscal consolidation and structural reform?

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Dams And Dikes For Public Finances


By Vitor Gaspar, Richard Hughes, and Laura Jaramillo

Fortune, wrote Machiavelli five hundred years ago in The Prince, is like a violent river. She “shows her power where virtue has not been put in order to resist her and therefore turns her impetus where she knows that dams and dikes have not been made to contain her.” Managing the ebb and flow of government’s fiscal fortunes poses similar challenges today. We need a risk-based approach to fiscal policymaking that applies a systematic analysis of potential sources of fiscal vulnerabilities. This method would help countries detect potential problems early, and would allow for institutional changes to build resilience.

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Smart Fiscal Policy Will Help Jobs


Vitor Gasparby Vitor Gaspar 

(version in EspañolFrançais中文Русский, and 日本語)

Unemployment remains unacceptably high in many countries. It increased dramatically during the Great Recession. Global unemployment currently exceeds 200 million people. An additional 13 million people are expected to be unemployed by 2018.

The most worrisome is youth unemployment. There are examples of advanced economies in Europe where youth unemployment surged above 50 percent. In several developing economies, job creation does not absorb the large number of young workers entering the labor force every year.

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Back-to-School Blogs


By iMFDirect

As you trudge back to the office or cubie with a little sand still crunching in your backpack, you know the holiday is over. To help you catch up, here are some blogs to re-read to get you back into the swing of things.

Remember Europe? I thought so. The European Central Bank is center stage this week as inflation in Europe has hit a trough, which reminded me of our blog about deflation back in March that rattled a few cages.

Which brings us to what will or won’t happen with global interest rates, and their impact on well, pretty much everyone. We’ve analyzed the tea leaves so you don’t have to.

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