Challenges of Fiscal Policy in Emerging and Developing Economies

This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This r...

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Bibliographic Details
Main Authors:	Huidrom, Raju, Kose, M. Ayhan, Ohnsorge, Franziska L.
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	CURRENCY MISMATCHES MONETARY POLICY DEFICIT WITHDRAWAL DEBT ACCUMULATION CAPITAL MARKETS CONSUMPTION EXPENDITURES HOLDING OIL PRICE LONG-TERM INTEREST STOCK MACROECONOMIC MANAGEMENT INTEREST GUARANTEES GOVERNMENT SPENDING EMERGING ECONOMIES INTEREST RATE PRIVATE CREDIT OPTION EXCHANGE GOVERNMENT REVENUES DEBT MANAGEMENT LIQUIDITY DEVELOPING COUNTRIES REAL INTEREST POLITICAL ECONOMY EXPORTERS REVENUES PORTFOLIO FISCAL POLICY LIQUIDITY RISK BONDS MACROECONOMIC CONDITIONS TAX GOVERNMENT BOND RESERVE MARKET ACCESS GOVERNMENT GUARANTEES INTERNATIONAL BANK PENSION DEBT BURDEN CREDIBILITY FINANCIAL FRAGILITY BUDGET MARKET PARTICIPANTS CENTRAL BANK MATURITY POLICY RESPONSE FISCAL POLICIES INSTITUTIONAL INVESTOR OIL PRICES INITIAL DEBT GLOBAL ECONOMY CURRENCY INTEREST EXPENSE DOMESTIC CURRENCY EXCHANGE RATE MOVEMENTS POLICY RESPONSES FOREIGN CURRENCY DEBT RESERVE BANK BOND YIELD GOVERNMENT BOND YIELD PRICE VOLATILITY CAPITAL FORMATION EXCHANGE RATES OPTIONS INTEREST RATES MONETARY FUND GLOBALIZATION PRIVATE SECTOR DEBT MARKETS DEBT FINANCIAL CRISES LOCAL GOVERNMENT RETURN OPEN ECONOMY BUSINESS CYCLE PUBLIC DEBT MANAGEMENT INTERNATIONAL ECONOMICS REAL INTEREST RATE RESERVES NEGATIVE SHOCKS GROSS DOMESTIC PRODUCT PENSION FUNDS COMMODITY PRICE FINANCE FOREIGN CURRENCY TAXES EXPENDITURE DEBT LEVELS EMERGING MARKETS INCOME TAXES INVESTORS SOVEREIGN DEBT DEBT RATIO FEDERAL RESERVE GOOD CENTRAL GOVERNMENT DEBT FEDERAL RESERVE BANK INTERNATIONAL FINANCIAL STATISTICS TRANSPARENCY LONG-TERM INTEREST RATE PRIVATE SECTOR CREDIT MARKET CONDITIONS ACCESS TO CAPITAL FINANCIAL CRISIS FUTURE DEBT CRISES SHORT-TERM DEBT BUDGETS LONG-TERM INTEREST RATES GOVERNMENT EXPENDITURE EXPENDITURES PORTFOLIO ALLOCATION TAX RATES SHARES BALANCE SHEET DEBT STOCKS MARKET DEBT RATIOS PUBLIC DEBT TREASURY SOLVENCY MACROECONOMIC VARIABLES BUSINESS CYCLES CURRENCIES GOVERNMENT DEBT GOODS INVESTOR STOCKS OUTSTANDING DEBT BOND DOMESTIC CREDIT SOVEREIGN BONDS SHARE BALANCE SHEETS POVERTY FINANCIAL MARKETS TREASURY YIELDS REVENUE EXTERNAL DEBT LENDING CREDIT GROWTH PENSION FUND EXCHANGE RATE INSTRUMENT BANKING CRISES WITHDRAWAL OF FUND COMMODITY PRICES LIABILITIES INTERNATIONAL MARKETS INTERNATIONAL SETTLEMENTS GUARANTEE DEBT RELIEF
Online Access:	http://documents.worldbank.org/curated/en/2016/06/26514565/challenges-fiscal-policy-emerging-developing-economies http://hdl.handle.net/10986/24642

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Summary:	This paper presents a systematic analysis of the availability and use of fiscal space in emerging and developing economies. These economies built fiscal space in the run-up to the Great Recession of 2008-09, which was then used for stimulus. This reflects a more general trend over the past three decades, where availability of fiscal space has been associated with increasingly countercyclical (or less procyclical) fiscal policy. However, fiscal space has shrunk since the Great Recession and has not returned to pre-crisis levels. Emerging and developing economies face downside risks to growth and prospects of rising financing costs. In the event that these cause a sharp cyclical slowdown, policy makers may need to employ fiscal policy as a possible tool for stimulus. An important prerequisite for fiscal policy to be effective is that these economies have the necessary fiscal space to employ countercyclical policies. Over the medium-term, credible and well-designed institutional arrangements, such as fiscal rules, stabilization funds, and medium-term expenditure frameworks, can help build fiscal space and strengthen policy outcomes.

Challenges of Fiscal Policy in Emerging and Developing Economies

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