For some countries stimulus is appropriate during the global economic crisis. But for others the answer is less clear
The role of fiscal policy in ameliorating the adverse effects of the global economic downturn is at the center of the policy debate in Latin America, as it is in other parts of the globe. Economic growth in the region is projected to decline from a healthy 4 percent in 2008 into negative territory in 2009, reversing some of the impressive gains in employment and poverty reduction of recent years. Fiscal, or government, revenues are also coming under pressure, making it difficult for countries to achieve targets for budget deficits, even without new spending initiatives. At the same time, many countries are constrained by limited access to financing and still-high levels of public debt, making it difficult to expand public borrowing. In these circumstances, how do policymakers assess whether or not a fiscal stimulus is appropriate? Under what conditions are markets likely to permit this kind of fiscal expansion to be effective in helping support living standards during a period of economic downturn?
Fiscal effects of the downturn
The contraction in economic activity and falling commodity prices are placing substantial pressure on government revenue. After several years of increases, revenue-to-GDP ratios for Latin American countries, on average, are Shifting fiscal fortunesprojected to fall by about 2 percentage points of GDP in 2009 (see chart). The revenue declines among commodity producers are especially noteworthy. Fiscal revenues are likely to drop significantly below their estimated long-run levels, and a key issue is whether it is desirable and feasible to protect public spending from falling as well.
See full Article.
Posts
