A Balance Sheet Approach to Fiscal Policy

The fiscal balance is improving, but it should be carefully managed over the next two years.

The fiscal flexibility of the Fund of UNDCP provided by the existing fund balance was noted.

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment.

Fiscal policy reflects the commitment gradually to reduce public deficits to arrive at a budget in balance.

Sweden and Chile are almost poles apart geographically, but both have used sophisticated fiscal rules successfully. Chile sets a target for its cyclically adjusted fiscal balance that is, the balance that emerges after accounting for the deviations in commodity prices and domestic output from their trends.

Between 2001and 2006, Prime Minister Junichiro Koizumi aggressively tackled Japan s fiscal problems. Koizumi sought smaller government and set clear numerical targets for fiscal consolidation, including a primary budget balance in 10 years.

That is how the turnaround of the economy took place by reducing the fiscal deficit and converting the external balance of payments from deficit to surplus.

The related expenditures at the end of the fiscal year amounted to 3,946,000 gross and net, resulting in an unencumbered balance of 54,000 gross ( 10,300 net).

Fiscal Challenges and Fiscal Follies

35. Stabilization measures had, on the whole, resolved the hyperinflation, fiscal imbalance and balance of payments problems which had affected those countries at the beginning of the 1990s.

The fifth option is to tighten fiscal policy and reduce budget deficits with the aim of lowering the high interest rates that drive the inflows. But sounder fiscal policy might lead to even higher inflows as the country s external balance and sovereign risk outlook improve.

Acknowledging that recent fiscal policies had put the US on an unsustainable trajectory of rising public debt, Obama said that moving towards budget balance was now essential for fiscal stability. So he called for a five year freeze on what the US government calls discretionary civilian spending.

Spending cuts and tax increases that in the long run restore fiscal sanity and balance are good. Having them all hit a weak, still depressed economy simultaneously is not good.

What this line of research explicitly does not tell us is that deleveraging will restore growth by itself. No one believes that fiscal balance is the whole growth model anywhere.

To offset the negative impact of private sector deleveraging on growth, the US government has maintained expansionary fiscal and monetary policies. Now, with household debt sustained on a knife edge after feverish government intervention, the fiscal position has deteriorated dramatically and the current account balance has worsened again.

Granting balance of payments support has important fiscal implications, and it is natural that there should be continuing close oversight by those who ultimately provide the capital the IMF s member states.

According to financial regulation 4.2 (b), The unencumbered balance of the appropriations at the end of the fiscal period shall be surrendered to the Members at the end of the first calendar year following the fiscal period after deducting therefrom any contributions from Members relating to that fiscal period, which remain unpaid, and shall be credited to the Members in proportion to their assessed contributions.

Fiscal Follies

Fiscal Year

Fiscal yeara

What's fiscal ?

And here was the clincher By committing themselves to fiscal tightening, finance ministers gave themselves scope for some fiscal loosening. Proclaiming fiscal virtue enabled them to practice fiscal vice.

The structural primary budget balance, the International Monetary Fund s preferred measure of fiscal thrust, tightened by an additional 1 1.5 of GDP each year from 2010 to 2012, after which it remained broadly stable. The subsequent two years of neutral fiscal policy has made a positive difference for economic performance.

Most major countries fiscal deficits nowadays reflect the recent collapse of tax revenues that followed the growth downturn, as well as very costly financial sector bailouts. And yet many policymakers are insisting on immediate action to rectify not only fiscal deficits, but also trade imbalances and banks balance sheet weaknesses.

Not only is QE s ability to jumpstart crisis torn, balance sheet constrained economies limited it also runs the important risk of blurring the distinction between monetary and fiscal policy. Central banks that buy sovereign debt issued by fiscal authorities offset market imposed discipline on borrowing costs, effectively subsidizing public sector profligacy.

Fund balance Balance at 1 January 1996

America and the world should remember Argentina s privatization of its pension system was at the center of its recent fiscal woes. Had Argentina not privatized, its budget would have been roughly in balance.

Several possibilities not mutually exclusive come to mind. One is that some policymakers think that fiscal balance really is the main pillar in a growth strategy Deleverage quickly and get on with it.

fiscal year 2000 2001 to the fiscal year 2002 2003 (table 5).

There was a balance, a five sided balance.

In order to avert a likely depression, governments around the world engaged in fiscal and monetary stimulus in the midst of the global financial crisis. They succeeded in offsetting nasty economic dislocations caused by private sector deleveraging, but at the cost of encumbering their fiscal balances and their central banks balance sheets.

Contrary to the prevailing wisdom nowadays, some degree of Keynesian demand management in the transition to a more sustainable growth pattern is not in conflict with restoring fiscal balance over a sensible time period. On the contrary, applied both individually and together, fiscal stimulus and consolidation are necessary parts of the adjustment process.

While recognizing the importance of macroeconomic stability in securing strong and sustainable economic growth, some participants underlined the need to strike a balance between short term macroeconomic objectives and long term development goals for example, fiscal discipline should be achieved in a medium term framework and fiscal policies should not be pro cyclical.

A healthy state balance sheet could help, because part of the income flowing to capital would go to the state. But, with the exception of China, fiscal positions around the world are currently weak.

Europe s Fiscal Wormhole

America s Fiscal Isolationism

Fiscal Apocalypse Now

Germany s Fiscal Follies

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Balance