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A mini briefing on global public finance trends

According to IMF estimates the structural government deficit in the developed world has returned to its pre-crisis level. This reflects cumulative fiscal tightening of over 4% of GDP since 2010. Government debt ratios remain elevated, however, at close to 105% of GDP, some 33%-points above pre-crisis levels, leaving public finances more sensitive to real interest rates. Emerging market fiscal indicators continue deteriorating.

IMF Fiscal Monitor, October 2015

The below is a brief summary of the key numbers of the statistical annex of the report

Advanced economies’ government deficits

The IMF estimates that the general government deficit of the advanced economies will shrink to 3.1% of GDP in 2015, from 3.4% in 2014 and a post-crisis peak of 8.8% in 2009. I would remain significantly above the pre-crisis ratio of 1.1% of the GDP until the end of this decade, however.

The IMF estimates that adjusted for the business cycle the developed world’s general government deficit-to-GDP ratio would be lower, at 2.5%, down from 2.8% last year. This would imply that structural deficits have on average returned to their pre-crisis level.

The general government deficit of the euro area is estimated to narrow to just 2% of GDP in 2015, from 2.4% in 2014. The U.S. deficit is significantly higher at 3.8% of GDP, down from 4.1% in 2014. Japan’s government deficit is estimated to have declined more than others (1.4%-points from 2014 to 2015), but remains the highest in the developed world at 5.9% of GDP.

Judging from the development of the structural primary government balances (which exclude the effects of the business cycle and net interest rate payments) the implied cumulative discretionary fiscal tightening from 2010 to 2015 would have been 4.1% of GDP. Yet the pace of tightening has lessened from 1.1% of GDP in 2011-2013 to just 0.3-0.4% in 2014 and 2015. Going forward the IMF expects some more modest fiscal tightening of 0.2-0.3% in 2016-2017.

Advanced economies’ public debt

The general government gross debt stock of the developed world is estimated to have inched down to 105.2% of GDP in 2015, from a peak of 106.8% in 2012. Yet it remains well above the 72% ratio prior to the great financial crisis. It is expected to diminish just slightly to below 102% of GDP by the end of this decade.

Japan retains the highest government debt-to-GDP ratio in the developed world at 246%, followed by Greece (197%), Italy (133%) and Portugal (128%). The U.S. general government debt ratio is close to the global average at 105% of GDP, while the euro area’s is lower at 94%.

Emerging economies’ fiscal trends

The IMF estimates that the average general government deficit in the emerging world will surge to 4.1% of GDP in 2015, from 2.5% in 2015, from 2.5% in 2014. This means that for the first time in more than a decade the EM government deficit ratio would be above the developed world’s ratio.

The highest EM deficit ratios are expected in countries with limited market significance, such as Northern Africa (12-80% of GDP), Venezuela (24%) and Saudi Arabia (22%). Among the larger emerging markets, high deficit ratios are expected in India (7.2%), Russia (5.7%) and Mexico (4%).

General government gross debt ratios are on the rise as well. The EM average government debt is expected to increase to 44.6% of GDP in 2015, from 41.9% in 2014 and a low of 35% in 2008.


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