The State of Public Finances: A Cross-Country Fiscal Monitor

Paolo Mauro, Mark Horton and Manmohan Kumar

No 2009/021, IMF Staff Position Notes from International Monetary Fund

Abstract: This paper presents sharp increase in government debt has complicated the management of preexisting challenges from population aging, especially in advanced economies. The increase in debt ratios projected for these economies is the largest since World War II. The increase in deficits and debt raises complicated tradeoffs. Policymakers will need to balance two competing risks: on the one hand, a too hasty withdrawal of fiscal stimulus would risk nipping a recovery in the bud; on the other hand, with a delayed withdrawal investor concerns about sustainability may increase, leading to higher interest rates on government paper, undermining the recovery and increasing risks of a snowballing of debt. Regardless of the timing of adjustment, its necessary scale will be quite large, particularly for high-debt advanced economies. Preserving investor confidence in government solvency is key to avoiding an increase in interest rates, thereby not only preventing snowballing debt dynamics, but also ensuring that the fiscal stimulus is effective.

Keywords: SPN; G20 industrial nations; country; GDP; market G-20 country; country authorities; interest rate; government financing; country circumstances; fund G-20 desk; GDP ratio; stimulus spending; PPP GDP-weighted average; financial support; ameliorating spending dynamics; emerging G-20 country; Emerging and frontier financial markets; Fiscal stance; Fiscal stimulus; Global; Europe; Africa (search for similar items in EconPapers)
Pages: 33
Date: 2009-07-30
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Citations: View citations in EconPapers (16)

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