Recent Fiscal Developments and Outlook: The April 2014 IMF Fiscal Monitor Julio Escolano

Transcription

1 Recent Fiscal Developments and Outlook: The April 214 IMF Fiscal Monitor Julio Escolano Division Chief, Fiscal Policy and Surveillance Fiscal Affairs Department, IMF Joint Vienna Institute, Vienna, June, 214

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3 Outline Recent Fiscal Developments and Outlook Selected fiscal risks Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 3

4 Advanced economies: some progress but still some way to go Required Adjustment to Medium-Term Budgetary Objective (percent of GDP) Change in structural primary balance, Additional adjustment needed to achieve debt stabilizing primary balance, 214 Total adjustment to achieve medium-term objective DEU NZL AUT ISR NLD BEL AUS FRA ITA USA JPN SVN SVK CZE ISL PRT GBR ESP IRL 4

5 AEs: Fiscal Vulnerabilities Remain Elevated Evolution of Gross Debt and Cyclically Adjusted Balance, Gross Debt Cyclically Adjusted Balance Cyclically Adjusted Balance (percent of potential GDP) Gross Debt (percent of GDP)

6 AEs: Composition of Fiscal Adjustment is Shifting Advanced Economies: Contribution to the Change in the Cyclically Adjusted Primary Balance All AE USA Euro Area Expenditure Revenue 6

7 Improved fiscal balances somewhat eased sovereign debt risks Overall Fiscal Balance (percent of GDP) 4 2 Emerging Market & Developing Economies -2 World Advanced Economies

8 EMs: Current Fiscal Plans Continue to Postpone Consolidation Primary and Cyclically Adjusted Primary Balances 4 2 Cyclically adjusted primary balance (percent of potential GDP) -2 Primary balance (percent of GDP)

9 Public Debt on the Rise in Over Half of Low-Income Countries 7 Gross Government Debt (Percent of GDP) COD ETH TJK BFA CMR MLI UGA MMR HTI TZA SEN GHA ZMB MOZ YEM VNM HND 6

10 LICs: Is This Time Different? 16 Change in Government Debt and Government Investment (Percent of GDP) 14 MOZ 12 BFA SEN Government investment, average TCD CMR YEM MLI UGA ZMB TZA VNM HND GHA 2 45 SDN Change in government debt,

11 Looking forward: Selected fiscal risks Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 11

12 Fiscal risk No 1 Lack of medium-term plans in key economies Unites States Japan Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 12

13 The current stance is not sustainable United States and Japan: Fiscal Outlook (Percent of GDP) United States 12 Japan Overall balance (left scale) Primary balance (left scale) Debt (right scale) 13

14 Fiscal risk No 2 Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 14

15 Financing terms are becoming less favorable 5 G-2 Emerging Market Economies: Change in the 214 Interest Rate Growth Differential Relative to Average (Percentage points) TUR ZAF MEX ARG IND BRA SAU CHN RUS IDN

16 Debt dynamics will worsen in EMs Emerging Economies: Permanent 1bp Increase in US 1-y Bond Yields 95th percentile VIX Average VIX 5 4 EM ASIA: Public Debt (percent of GDP) 5 4 EM LATIN AMERICA: Public Debt (percent of GDP) EM EUROPE: Public Debt (percent of GDP) 5 EM MIDDLE EAST: Public Debt (percent of GDP)

17 And fiscal distress episodes can rise Emerging Economies: US Monetary Policy Tightening and Incidence of Sovereign Debt Crises No Tightening No tightening (Above-Median Term Spread) Tigthtening Tightening (Above-Median Term Spread) 2

18 Non resident holdings of local currency public debt have increased Local currency Foreign currency Total Currency Composition of Nonresident Government Debt Holdings (Percent of GDP) Local currency Foreign currency THA PER COL TUR IDN BRA MYS ZAF MEX POL HUN 18

19 Fiscal risk No 3 Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 19

20 Inflation has trended down consistently in the euro area Inflation Rate in Euro Area, Japan, Sweden, the United Kingdom, and the United States (Percent) 6 United Kingdom Euro area 1 United States Sweden -1 Japan

21 Low inflation can severely worsen debt dynamics 125 Spain and Euro Area: Government Debt Under Three Inflation Scenarios (Percent of GDP) Spain 125 Euro Area WEO % inflation -1% inflation 21

22 Fiscal risk No 4 Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 22

23 Banking crises have had a high fiscal cost 45 Selected Advanced Economies: Financial Sector Support and Recovery (percent of 213 GDP) Ireland Greece Netherlands Germany Slovenia Cyprus United Kingdom Spain Belgium United States Impact on Gross Public Debt and Other Support Recovery to Date 23

24 Other contingent liabilities also matter China: Financing Sources of Infrastructure Investment (percent of GDP) 2 State Budget Off-budget borrowings Land sales

25 Benefits and risks of public private partnerships General Government Capital Stock (Percent of GDP) Advanced Economies Emerging Market Economies Low-Income Countries Without PPPs With PPPs 25

26 Fiscal risk No 5 Lack of medium-term plans in key economies Tightening global liquidity conditions Reducing sovereign debt in a very low inflation environment Containing public contingent liabilities Medium-term expenditure pressures 26

27 Government spending has been on an upward trend for decades General Government Expenditure (Percent of GDP) 5 Select Advanced Economies, Emerging Market Economies and Low- Income Countries, Emerging market economies Low-income countries

28 Baumol effects partially drive spending Government Consumption, (Percent of GDP) Selected Advanced Economies DNK ISL ESP FIN NLD PRT SWE FRA BEL NOR JPN NZL CAN AUS ITA AUT GRC IRL GBR CHE USA Cross effect Relative price effect Relative volume effect Change in spending 28

29 even if real government consumption is contained Government Consumption, (Percent of GDP) 22 Advanced Economies Emerging Market Economies 22 2 Real government consumption (percent of real GDP) Government consumption (percent of GDP) Real government consumption (percent of real GDP) Government consumption (percent of GDP)

30 Population aging will exacerbate the trend going forward Age-Related Expenditure in Advanced and Emerging Economies (Percent of GDP) Health Pension AE EME AE EME 3

31 The secular decline in public capital stocks may present additional needs General Government Capital Stock (Percent of GDP) Advanced Economies Emerging Market Economies Low-Income Countries Without PPPs With PPPs 31

32 Spending reforms will have to tackle the largest budget items Expenditure Structure (Percent of total primary expenditure) Advanced Economies Emerging Market Economies and Low-Income Countries 4% 26% 23% 26% 52% 18% 34% 17% Compensation of employees Goods and services Social benefits and subsidies Investment 32

33 Thank you! 14/1/fmindex.htm