IMF Staff Position Notes

November 3, 2009

The State of Public Finances Cross-Country Fiscal Monitor: November 2009

Description: This paper highlights the state of Public Finances Cross-Country Fiscal Monitor. This edition of the Cross-Country Fiscal Monitor provides an update of global fiscal developments and policy strategies, based on projections from the November 2009 WEO. These projections reflect the assessment of IMF staff of current country policies and initiatives expected during 2009–2014 Underlying fiscal trends in advanced economies are weaker than previously projected, however, lower expected costs of financial sector support in the United States mean that 2009 headline numbers are better. New estimates of needed medium-term fiscal adjustment in advanced economies. Fiscal policy will continue to provide substantial support to aggregate demand in most countries this year, but a tightening is projected to commence next year in G-20 emerging markets. Fiscal policy is projected to begin tightening in emerging G-20 economies next year, reflecting a combination of reduced anti-crisis spending and expected consolidation beyond the withdrawal of crisis-related stimulus in Brazil, Mexico, and Turkey, supported by a pick-up of growth. Higher commodity prices are also expected to contribute to lower overall deficit.

October 7, 2009

Policies to Address Banking Sector Weakness: Evolution of Financial Markets and Institutional Indicators

Description: This paper reviews the impact of policies to address banking sector weaknesses through the first months of 2009. At the time of this assessment, central bank intervention had successfully addressed pressures on bank liquidity, but the underlying financial position of financial institutions, particularly the large complex financial institutions (LCFIs), remained precarious. Although Tier 1 ratios had been boosted through the capital injections, tangible common equity (TCE) remained at a critical level for most institutions. Asset quality was weakening, and credit spreads for LCFIs remained wide. Measures had not stemmed the market-driven deleveraging process, and lending surveys pointed to various levels of credit tightening in the United States, Europe, Switzerland, and the United Kingdom. The success of government support measures can be assessed by their impact on bank soundness indicators. Government support measures should have a positive effect on bank soundness by improving bank liquidity, profitability, capital adequacy, and asset quality.

September 28, 2009

Automatic Fiscal Stabilizers

Description: This paper discusses how to enhance automatic stabilizers without increasing the size of government. We distinguish between permanent changes in the parameters of the tax and expenditure system (e.g., changes in tax progressivity) that will enhance the traditional automatic stabilizer, and temporary changes triggered by certain economic developments (e.g., tax measures targeted at credit and liquidity constrained households, triggered during a severe downturn). We argue that, with some exceptions, the latter are preferable as they can be implemented with lower disruptions in other fiscal policy goals (e.g., economic efficiency). Moreover, countries should also avoid introducing procyclicality as a result of fiscal rules, as these would offset the effect of existing automatic stabilizers.

September 22, 2009

A Strategy for Renormalizing Fiscal and Monetary Policies in Advanced Economies

Description: In response to the worst economic crisis since the 1930s, government budgets and central banks have provided substantial support for aggregate demand and for the financial sector. In the process, fiscal balances have deteriorated, government liabilities and central bank balance sheets have been expanded, and risks of future losses for the public sector have increased.

July 30, 2009

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

Description: 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.

July 22, 2009

The International Financial Crisis and Global Recession: Impact on the CEMAC Region and Policy Considerations

Description: The financial sector of the Central African Economic and Monetary Community (CEMAC) has been seriously affected by the global financial crisis and resulting global recession. This note assesses the response of CEMAC governments to the global financial crisis and recession, with particular focus on the impact of current policies on each country’s fiscal sustainability as well as the region’s external sustainability and reserve coverage. The note then provides general policy advice to CEMAC governments as they refine their response to the global crisis.

Notes: Full text also available in French.

July 21, 2009

Global Financial Regulatory Reform: Implications for Latin America and the Caribbean (LAC)

Description: The Latin America and Caribbean (LAC) region has weathered the global financial crisis reasonably well so far, although tighter global financial conditions began to take their toll on trade, capital flows and economic growth in late 2008. This resilience reflects the reforms put in place by many countries over the past decade to strengthen financial supervision and adopt sound macroeconomic policies. Building on this progress, the region’s financial sector reform agenda now aims at further improvements, including steps aiming to improve compliance with the Basel Core Principles of Banking Supervision and to broaden and deepen domestic financial markets.

July 16, 2009

Disclosing Fiscal Risks in the Post-Crisis World

Description: This paper discusses appropriate methods for disclosing fiscal risks from exogenous shocks and the realization of explicit or implicit contingent obligations of the government. Expanding on previous guidance prepared prior to the crisis, the note focuses on fiscal risks emerging from recent public interventions in the financial sector. Information on fiscal risks and its public reporting leads to a better understanding of the true state of the public finances. Thus, it helps policymakers design and gets public support for, appropriate responses to the realization of various contingencies. More specifically, in the context of the unfolding global financial crisis, a wide range of public sector interventions have been in support of the financial system. Although these interventions have been necessary, they have generated further fiscal risks. Comprehensive reporting would help governments to define a management strategy of the assets and liabilities that they have taken on their balance sheet and to prepare exit strategies for reducing their presence in the financial sector and eventually withdrawing support.

July 14, 2009

Collecting Taxes During an Economic Crisis: Challenges and Policy Options

Description: The global financial and economic crisis presents major challenges for tax agencies. With the economic downturn, tax agencies are encountering emerging compliance problems and greater demands for taxpayer support in the face of prospective budget cuts. To help address these challenges, this paper encourages tax agencies to develop a tax compliance strategy for the crisis by (1) expanding assistance to taxpayers, (2) refocusing enforcement on emerging compliance risks, (3) enacting legislative reforms that facilitate tax administration, and (4) improving communication programs. In each of these areas, the paper identifies specific measures to underpin the strategy, drawing on practices from leading tax agencies and experiences from IMF technical assistance. The paper also highlights emerging tax compliance issues in the financial sector.

June 26, 2009

Principles of Household Debt Restructuring

Description: This paper examines the estimated compliance with the macroeconomic convergence targets for 2008, based on estimates contained in the IMF’s Regional Economic Outlook: Sub-Saharan Africa (the REO). SADC’s regional economic integration agenda includes a macroeconomic convergence program, intended to achieve and maintain macroeconomic stability in the region, thereby contributing to faster economic growth and laying the basis for eventual monetary union. Targets for key macroeconomic variables have been set out for 2008, 2012, and 2018. Most SADC member states have recorded solid macroeconomic performance in recent years, in general coming close to, and in many cases surpassing, the convergence targets specified for 2008. A notable exception in this regard is Zimbabwe, which was in the grip of hyperinflation. The macroeconomic targets for 2012 are ambitious and, in some cases, warrant further evaluation, given that achieving the targets may be neither necessary nor sufficient to achieve good macroeconomic results.