Read without ads and support Scribd by becoming a Scribd Premium Reader.
See Premium Plans
 
 
FOR RELEASE:10:00 am EST, January 24, 2012STRICTLY CONFIDENTIALUNTIL RELEASED
As Downside Risks Rise, Fiscal Policy Has To Walk a Narrow Path
 Deficits in many advanced economies fell significantly during 2011, and most plan substantial adjustment this year. Continued adjustment is necessary for medium-term debt sustainability, but  should ideally occur at a pace that supports adequate growth in output and employment. Giventhe large adjustment already in train this year, governments should avoid responding to anyunexpected downturn in growth by further tightening policies, and should instead allow theautomatic stabilizers to operate, as long as financing is available and sustainability concerns permit. Countries with enough fiscal space, including some in the euro area, should reconsider the pace of near-term adjustment. At the same time, some countries—notably, the United Statesand Japan—need to clarify their medium-term debt-reduction strategies. Adjustment should be supported by the availability of adequate nonmarket financing when, as in the euro area, market confidence is slow to respond to reforms.
Fiscal deficits fell significantly in 2011in many advanced economies…
In advanced economies, fiscal deficits fell in2011 by about 1 percent of GDP overall, and byonly slightly less after taking into account thenarrowing output gap. The headline deficit fell by2 percent of GDP in the euro area, and by a stillsizable 1¼ percent of GDP in cyclically adjustedterms (Table 1). However, a large share of theimprovement within the euro area is accountedfor by Germany, where the cyclically adjusteddeficit fell by 2¼ percent of GDP, reflecting anunusually strong response of revenues andemployment to output. The cyclically adjusted balance also strengthened substantially in Spain,while France and Italy posted more modestimprovements, as measures announced or approved in these countries will not take fulleffect until next year (see below). Cyclicallyadjusted deficits also fell substantially in theUnited Kingdom and the United States, but rosemarginally in Japan owing to reconstruction costsrelated to the natural disaster.Among European program countries, headlinedeficits were larger than expected in
Greece
 owing in part to a weaker economic outturn.Slippages in the implementation of revenue andspending measures and lower tax compliancesuggest that the cyclically adjusted deficitexceeded expectations as well, notwithstandingan improvement of 3 percentage points of GDPrelative to 2010. In Portugal, the fiscal target wasmet through a one-time partial transfer of banks’ pension fund assets, implying that the underlyingadjustment in 2011 was smaller than expectedthere, although still very sizable (4 percentage points of GDP in cyclically adjusted terms). InIreland, headline fiscal outturns were on track,and the cyclically adjusted balance improved by2 percent of GDP
.
 
2 Fiscal Monitor Update, January 2012
Est.200820092010201120122013201120122013
Overall Fiscal Balance
World-2.0-6.7-5.5-4.5-4.1-3.40.0-0.4-0.5Advanced economies-3.8-9.0-7.6-6.6-5.7-4.60.0-0.4-0.5United States-6.7-13.0-10.5-9.5-8.0-6.40.1-0.1-0.2Euro Area-2.2-6.5-6.3-4.3-3.4-2.9-0.1-0.3-0.4France-3.3-7.6-7.1-5.7-4.8-4.40.1-0.2-0.5Germany-0.1-3.2-4.3-1.1-0.7-0.10.60.40.7Italy-2.7-5.3-4.5-3.9-2.8-2.30.2-0.4-1.1Spain-4.2-11.2-9.3-8.0-6.8-6.3-1.8-1.7-1.9Japan-4.7-10.8-9.3-10.1-10.2-8.80.2-1.0-1.0United Kingdom-4.9-10.4-9.9-8.6-7.8-6.5-0.1-0.8-1.4Canada0.1-4.9-5.6-4.9-4.4-3.6-0.6-1.2-1.7Emerging economies-0.4-4.8-3.6-2.6-2.7-2.50.1-0.4-0.5China-0.4-3.1-2.3-2.0-2.0-1.4-0.4-1.2-1.3India-7.2-9.7-8.9-8.5-7.9-7.6-0.4-0.4-0.2Russia4.9-6.3-3.50.5-1.4-1.71.60.70.6Brazil-1.4-3.1-2.8-2.6-2.4-2.3-0.20.40.3Mexico-1.1-4.7-4.3-3.0-2.7-2.10.30.00.3South Africa-0.5-5.3-5.1-4.9-4.8-4.2-0.6-0.9-0.9Low-income economies-1.3-4.0-3.1-2.8-2.8-2.30.30.10.2G-20 economies-2.7-7.6-6.2-5.1-4.7-3.90.1-0.4-0.5G-20 advanced-4.4-9.6-8.2-7.2-6.3-5.10.1-0.3-0.5G-20 emerging-0.2-4.8-3.5-2.5-2.7-2.50.0-0.5-0.6
General Government Cyclically Adjusted Balance
(Percent of Potential GDP)World-2.6-4.6-4.3-3.6-3.0-2.40.0-0.1-0.2Advanced economies-3.7-5.9-5.9-5.1-4.2-3.2-0.3-0.4-0.4United States
2
-5.0-7.5-7.8-7.0-5.6-4.3-0.6-0.7-0.6Euro Area-3.2-4.8-4.8-3.5-2.1-1.6-0.40.10.2France-3.0-5.3-5.2-4.4-3.3-3.1-0.10.0-0.1Germany-1.3-1.3-3.5-1.2-0.40.10.30.50.8Italy-3.6-3.5-3.4-2.9-0.80.0-0.40.30.0Spain-5.4-9.8-7.8-6.6-4.7-4.1-2.0-0.5-0.2Japan-4.1-7.7-7.8-8.0-8.6-7.80.1-1.0-0.9United Kingdom-6.5-9.0-7.8-6.3-5.1-3.70.0-0.4-0.8Canada-0.5-2.5-4.0-3.8-3.2-2.5-0.8-1.3-1.5Emerging economies-1.9-4.1-3.4-2.6-2.4-2.10.50.20.1China0.0-2.4-1.5-0.7-0.6-0.21.10.3-0.1India-9.3-10.7-9.5-8.9-8.3-8.0-0.6-0.3-0.1Russia3.8-3.3-1.91.0-1.3-1.71.30.50.5Brazil-2.2-2.2-3.3-2.8-2.2-2.2-0.20.60.4Mexico-1.3-3.8-3.8-2.8-2.7-2.10.70.40.8South Africa-2.0-4.9-4.6-4.4-4.0-3.6-0.7-0.6-0.5G-20 economies-3.0-5.2-5.0-4.2-3.6-2.90.1-0.2-0.2G-20 advanced-3.8-6.0-6.3-5.4-4.5-3.5-0.3-0.5-0.5G-20 emerging-1.7-4.1-3.4-2.6-2.5-2.20.50.20.0
General Government Gross Debt
World59.565.970.070.170.970.90.61.52.2Advanced economies82.093.799.7103.5107.6110.21.02.13.0United States76.189.998.5102.0107.6112.02.02.63.1Euro Area69.879.485.388.491.192.50.01.22.4France68.379.082.487.090.793.10.11.22.3Germany66.774.483.281.581.679.8-1.1-0.3-1.2Italy105.8115.5118.4121.4125.3126.60.43.96.5Spain39.953.660.870.178.184.02.67.911.2Japan196.2216.3219.0233.4241.0246.80.32.53.8United Kingdom52.568.475.180.886.690.30.11.84.4Canada71.183.685.185.586.784.71.42.62.4Emerging economies34.736.740.837.836.435.00.00.71.2China17.017.733.526.623.320.9-0.31.12.5India74.774.367.465.865.364.40.91.11.2Russia7.911.011.710.511.212.1-1.1-0.9-0.5Brazil63.566.965.266.064.262.01.00.2-0.5Mexico43.144.742.942.743.243.5-0.2-0.40.0South Africa27.431.535.337.940.041.51.11.52.0Low-income economies39.242.440.840.040.340.2-2.1-1.3-1.5G-20 economies66.473.378.277.878.578.40.71.72.4G-20 advanced87.6100.1106.4110.2114.6117.41.12.22.9G-20 emerging34.835.940.837.135.333.80.10.81.5
Memorandum:World Growth (percent)2.8-0.65.23.83.33.9-0.1-0.7-0.5 
2
Excluding financial sector support.
1
For overall fiscal balance and cyclically adjusted balance, + indicates a smaller fiscal deficit; for gross debt, + indicates alarger debt.
Table 1. Fiscal Indicators, 2008
 –
13
(Percent of GDP, except where otherwise noted)
ProjectionsDifference from September 2011
Fiscal Monitor 
1
Sources: IMF staff estimates and projections.Note: All country averages are PPP-GDP weighted using rolling weights. Projections are based on IMF staff assessment of current policies.
 
3 Fiscal Monitor Update, January 2012
… and further substantial consolidationis in the pipeline
 
In the
United States,
the cyclically adjusteddeficit is forecast to fall sharply this year, byaround 1½ percent of GDP. These projections assume that Congress will extend payroll tax relief and jobless benefits for thelong-term unemployed beyond their expiration date at the end of February.Without these extensions, the cyclicallyadjusted deficit would decline by over 2 percentage points of GDP—the largest annualfall in at least four decades—with negativerepercussions for the still unsettled economicoutlook. The risk of too rapid short-termadjustment stands in marked contrast to thecontinued lack of progress in clarifying amedium-term consolidation strategy,including the failure of the Joint SelectCommittee on Deficit Reduction to reachagreement on a medium-term program tostrengthen public finances.
 
 Japan
is projected to be the only largeadvanced economy to implement a fiscalexpansion in 2012, reflecting in partreconstruction costs related to the naturaldisaster. Total reconstruction costs are now budgeted at about 4 percent of GDP over 2011–13, financed initially through bondsales. These bonds are intended eventually to be redeemed through sales of government-owned stocks and a temporary increase in thecorporate tax rate, for 3 years, and in personalincome tax rates, spread over 25 years tominimize its impact. As part of its medium-term fiscal strategy, the government is tosubmit a tax reform bill, including its proposal for doubling the consumption taxrate to 10 percent by 2015, but this will not be sufficient in itself to put the debt ratio on adownward path.
 
In the
United Kingdom
, actual and potentialGDP growth estimates have been reviseddown, weakening projected headline andcyclically adjusted balances. To prevent afurther slowdown of the economy, thegovernment has indicated that it willaccommodate the weakened cyclicallyadjusted balance and let automatic stabilizersoperate freely over the next three years, withthe composition of adjustment beingreshuffled to make it more growth-friendly.The cyclically adjusted deficit is stillexpected to fall markedly this year, however.To maintain the government’s commitment to balance the current cyclically adjusted budgetwithin five years, further spending cuts in2015–17 have been announced.
 
In
Germany
, fiscal targets for 2012 areexpected to be slightly stronger thanenvisaged earlier, locking in over- performance from last year.
 
Many advanced economies have introducednew measures to support the achievement of their deficit targets. The new government in
Spain
has announced a first package of measures of 1.1 percent of GDP, includingspending cuts and temporary tax increases onincome, capital, and high-value homes. The package also includes a limited increase insocial spending and tax expenditures(mortgage deduction). A draft budget for 2012 will be submitted to Parliament by end-March. In
 Italy
, the adjustment packageapproved in December will augment by1¼ percent of GDP the fiscal consolidationenvisaged over 2012–14, following the Julyand September packages (resulting in a fiscaleffort of 3¼ percent and 1¼ percent of GDPthis year and next, respectively), enough to bring the budget into balance in cyclicallyadjusted terms next year. Key elements of the package include the reintroduction of realestate taxes on primary residences and pension reforms (tightening eligibility for early retirement, reducing pension indexationand accelerating the increase in retirement
Search
Search History:
Searching...
Result 00 of 00
00 results for result for
  • p.

    • More From This User

    2 p.
    Bill Shorten March142013
    peter_martin9335
    14 Reads
    2 p.
    Shorten March142013
    peter_martin9335
    16 Reads
    2 p.
    Shorten March142013
    peter_martin9335
    7 Reads
    52 p.
    2013 Pc Productivity Update
    peter_martin9335
    13 Reads
    3 p.
    OECD Economic Outlook Australia 2013.pdf
    peter_martin9335
    32 Reads
    28 p.
    21-5-13_ABE_address_Dr_M_Parkinson_3.pdf
    peter_martin9335
    42 Reads
    15 p.
    baby bonus 2.pdf
    peter_martin9335
    51 Reads
    18 p.
    BabyBonus.pdf
    peter_martin9335
    47 Reads
    2 p.
    Upcoming AA 2013 Economics3
    peter_martin9335
    42 Reads
    3 p.
    MRRT Costing
    peter_martin9335
    59 Reads
    18 p.
    NSW Land and Environment Court 120910 Monday.pdf
    peter_martin9335
    76 Reads
    81 p.
    Budget pressures report 20130420.pdf
    peter_martin9335
    85 Reads
    29 p.
    Treasury - Distribution of Gov Support for Retirement Income
    peter_martin9335
    101 Reads
    12 p.
    Knox_Tax and Superannuation - Shortcomings of the Superannuation Ta...
    peter_martin9335
    75 Reads
    18 p.
    CC Coalitions Plan for Fast Broadband and an Affordable NBN
    peter_martin9335
    77 Reads
    28 p.
    2012TaxSurvey.pdf
    peter_martin9335
    86 Reads
    8 p.
    CSI1303(1).pdf
    peter_martin9335
    76 Reads
    3 p.
    ACOSS Budget Savings.pdf
    peter_martin9335
    83 Reads
    10 p.
    Vacancy Report February 2013.doc
    peter_martin9335
    120 Reads
    76 p.
    Prime Ministers Plan for Jobs.pdf
    peter_martin9335
    151 Reads
    2 p.
    Wayne Swan G20 Intervention.doc
    peter_martin9335
    208 Reads
    5 p.
    Distributional analysis of superannuation taxation concessions Apri...
    peter_martin9335
    115 Reads
    1 p.
    Mining Tax Memo
    peter_martin9335
    95 Reads
    27 p.
    13 01 26 Our Plan Liberal Party
    peter_martin9335
    242 Reads
    6 p.
    Blackrock Sovereign Risk Update.pdf
    peter_martin9335
    143 Reads
    Notes
    Load more